Republic of the Philippines

SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 170141

April 22, 2008

JAPAN AIRLINES, petitioner,

vs.
JESUS SIMANGAN, respondent.
DECISION
REYES R.T., J.:
WHEN an airline issues a ticket to a passenger confirmed on a particular flight on a certain date, a contract
of carriage arises, and the passenger has every right to expect that he would fly on that flight and on that
date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage.
The power to admit or not an alien into the country is a sovereign act which cannot be interfered with even
by Japan Airlines (JAL).
In this petition for review on certiorari, petitioner JAL appeals the: (1) Decision dated May 31, 2005 of the
Court of Appeals (CA) ordering it to pay respondent Jesus Simangan moral and exemplary damages; and
(2) Resolution of the same court dated September 28, 2005 denying JAL's motion for reconsideration.
The Facts
In 1991, respondent Jesus Simangan decided to donate a kidney to his ailing cousin, Loreto Simangan, in
UCLA School of Medicine in Los Angeles, California, U.S.A. Upon request of UCLA, respondent undertook
a series of laboratory tests at the National Kidney Institute in Quezon City to verify whether his blood and
tissue type are compatible with Loreto's. Fortunately, said tests proved that respondent's blood and tissue
type were well-matched with Loreto's.
Respondent needed to go to the United States to complete his preliminary work-up and donation surgery.
Hence, to facilitate respondent's travel to the United States, UCLA wrote a letter to the American Consulate
in Manila to arrange for his visa. In due time, respondent was issued an emergency U.S. visa by the
American Embassy in Manila.
Having obtained an emergency U.S. visa, respondent purchased a round trip plane ticket from petitioner
JAL for US$1,485.00 and was issued the corresponding boarding pass. He was scheduled to a particular
flight bound for Los Angeles, California, U.S.A. via Narita, Japan.
On July 29, 1992, the date of his flight, respondent went to Ninoy Aquino International Airport in the
company of several relatives and friends. He was allowed to check-in at JAL's counter. His plane ticket,
boarding pass, travel authority and personal articles were subjected to rigid immigration and security
routines. After passing through said immigration and security procedures, respondent was allowed by JAL
to enter its airplane.
While inside the airplane, JAL's airline crew suspected respondent of carrying a falsified travel document
and imputed that he would only use the trip to the United States as a pretext to stay and work in Japan. The
stewardess asked respondent to show his travel documents. Shortly after, the stewardess along with a
Japanese and a Filipino haughtily ordered him to stand up and leave the plane. Respondent protested,
explaining that he was issued a U.S. visa. Just to allow him to board the plane, he pleaded with JAL to
closely monitor his movements when the aircraft stops over in Narita. His pleas were ignored. He was then
constrained to go out of the plane. In a nutshell, respondent was bumped off the flight.
Respondent went to JAL's ground office and waited there for three hours. Meanwhile, the plane took off and
he was left behind. Afterwards, he was informed that his travel documents were, indeed, in
order. Respondent was refunded the cost of his plane ticket less the sum of US$500.00 which was

deducted by JAL. Subsequently, respondent's U.S. visa was cancelled.

Displeased by the turn of events, respondent filed an action for damages against JAL with the Regional
Trial Court (RTC) in Valenzuela City, docketed as Civil Case No. 4195-V-93. He claimed he was not able to
donate his kidney to Loreto; and that he suffered terrible embarrassment and mental anguish. He prayed
that he be awarded P3 million as moral damages, P1.5 million as exemplary damages and P500,000.00 as
attorney's fees.
JAL denied the material allegations of the complaint. It argued, among others, that its failure to allow
respondent to fly on his scheduled departure was due to "a need for his travel documents to be
authenticated by the United States Embassy" because no one from JAL's airport staff had encountered a
parole visa before. It posited that the authentication required additional time; that respondent was advised
to take the flight the following day, July 30, 1992. JAL alleged that respondent agreed to be rebooked on
July 30, 1992.
JAL also lodged a counterclaim anchored on respondent's alleged wrongful institution of the complaint. It
prayed for litigation expenses, exemplary damages and attorney's fees.
On September 21, 2000, the RTC presided by Judge Floro P. Alejo rendered its decision in favor of
respondent (plaintiff), disposing as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the amount
ofP1,000,000.00 as moral damages, the amount of P500,000.00 as exemplary damages and the
amount ofP250,000.00 as attorney's fees, plus the cost of suit.
The RTC explained:
In summarily and insolently ordering the plaintiff to disembark while the latter was already settled
in his assigned seat, the defendant violated the contract of carriage; that when the plaintiff was
ordered out of the plane under the pretext that the genuineness of his travel documents would be
verified it had caused him embarrassment and besmirched reputation; and that when the plaintiff
was finally not allowed to take the flight, he suffered more wounded feelings and social humiliation
for which the plaintiff was asking to be awarded moral and exemplary damages as well as
attorney's fees.
The reason given by the defendant that what prompted them to investigate the genuineness of the
travel documents of the plaintiff was that the plaintiff was not then carrying a regular visa but just a
letter does not appear satisfactory. The defendant is engaged in transporting passengers by plane
from country to country and is therefore conversant with the travel documents. The defendant
should not be allowed to pretend, to the prejudice of the plaintiff not to know that the travel
documents of the plaintiff are valid documents to allow him entry in the United States.
The foregoing act of the defendant in ordering the plaintiff to deplane while already settled in his
assigned seat clearly demonstrated that the defendant breached its contract of carriage with the
plaintiff as passenger in bad faith and as such the plaintiff is entitled to moral and exemplary
damages as well as to an award of attorney's fees.
Disagreeing with the RTC judgment, JAL appealed to the CA contending that it is not guilty of breach of
contract of carriage, hence, not liable for damages. It posited that it is the one entitled to recover on its
counterclaim.
CA Ruling
In a Decision dated May 31, 2005, the CA affirmed the decision of the RTC with modification in that it
lowered the amount of moral and exemplary damages and deleted the award of attorney's fees. The fallo of
the CA decision reads:
WHEREFORE, the appealed Decision is AFFIRMED with MODIFICATION. Appellant JAPAN AIR
LINES is ordered to pay appellee JESUS SIMANGAN the reduced sums, as follows: Five Hundred
Thousand Pesos (P500,000.00) as moral damages, and Two Hundred Fifty Thousand Pesos
(P250,000.00) as exemplary damages. The award of attorney's fees is hereby DELETED.

The CA elucidated that since JAL issued to respondent a round trip plane ticket for a lawful consideration,
"there arose a perfected contract between them." It found that respondent was "haughtily ejected" by JAL
and that "he was certainly embarrassed and humiliated" when, in the presence of other passengers, JAL's
airline staff "shouted at him to stand up and arrogantly asked him to produce his travel papers, without the
least courtesy every human being is entitled to"; and that "he was compelled to deplane on the grounds that
his papers were fake."
The CA ratiocinated:
While the protection of passengers must take precedence over convenience, the implementation of security
measures must be attended by basic courtesies.
In fact, breach of the contract of carriage creates against the carrier a presumption of liability, by a
simple proof of injury, relieving the injured passenger of the duty to establish the fault of the carrier
or of his employees; and placing on the carrier the burden to prove that it was due to an
unforeseen event or toforce majeure.
That appellee possessed bogus travel documents and that he might stay illegally in Japan are
allegations without substantiation. Also, appellant's attempt to rebook appellee the following day
was too late and did not relieve it from liability. The damage had been done. Besides, its belated
theory of novation, i.e., that appellant's original obligation to carry appellee to Narita and Los
Angeles on July 29, 1992 was extinguished by novation when appellant and appellant agreed that
appellee will instead take appellant's flight to Narita on the following day, July 30, 1992, deserves
little attention. It is inappropriate at bar. Questions not taken up during the trial cannot be raised for
the first time on appeal. (Underscoring ours and citations were omitted)
Citing Ortigas, Jr. v. Lufthansa German Airlines, the CA declared that "(i)n contracts of common carriage,
inattention and lack of care on the part of the carrier resulting in the failure of the passenger to be
accommodated in the class contracted for amounts to bad faith or fraud which entitles the passengers to
the award of moral damages in accordance with Article 2220 of the Civil Code."
Nevertheless, the CA modified the damages awarded by the RTC. It explained:
Fundamental in the law on damages is that one injured by a breach of a contract, or by a wrongful
or negligent act or omission shall have a fair and just compensation commensurate to the loss
sustained as consequence of the defendant's act. Being discretionary on the court, the amount,
however, should not be palpably and scandalously excessive.
Here, the trial court's award of P1,000,000.00 as moral damages appears to be overblown. No
other proof of appellee's social standing, profession, financial capabilities was presented except
that he was single and a businessman. To Us, the sum of 500,000.00 is just and fair. For, moral
damages are emphatically not intended to enrich a complainant at the expense of the defendant.
They are awarded only to enable the injured party to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has undergone, by reason of the defendant's culpable
action.
Moreover, the grant of P500,000.00 as exemplary damages needs to be reduced to a reasonable
level. The award of exemplary damages is designed to permit the courts to mould behavior that
has socially deleterious consequences and its imposition is required by public policy to suppress
the wanton acts of the offender. Hence, the sum of P250,000.00 is adequate under the
circumstances.
The award of P250,000.00 as attorney's fees lacks factual basis. Appellee was definitely
compelled to litigate in protecting his rights and in seeking relief from appellant's misdeeds. Yet,
the record is devoid of evidence to show the cost of the services of his counsel and/or the actual
expenses incurred in prosecuting his action. (Citations were omitted)
When JAL's motion for reconsideration was denied, it resorted to the petition at bar.
Issues

JAL poses the following issues I.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS
ENTITLED TO MORAL DAMAGES, CONSIDERING THAT:
A. JAL WAS NOT GUILTY OF BREACH OF CONTRACT.
B. MORAL DAMAGES MAY BE AWARDED IN BREACH OF CONTRACT CASES ONLY
WHEN THE BREACH IS ATTENDED BY FRAUD OR BAD FAITH.
ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT
FRAUDULENTLY OR IN BAD FAITH AS TO ENTITLE RESPONDENT TO MORAL
DAMAGES.
C. THE LAW DISTINGUISHES A CONTRACTUAL BREACH EFFECTED IN GOOD
FAITH FROM ONE ATTENDED BY BAD FAITH.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT RESPONDENT WAS
ENTITLED TO EXEMPLARY DAMAGES CONSIDERING THAT:
A. EXEMPLARY DAMAGES ARE NOT RECOVERABLE IN BREACH OF CONTRACT OF
CARRIAGE UNLESS THE CARRIER IS GUILTY OF WANTON, FRAUDULENT,
RECKLESS, OPPRESSIVE OR MALEVOLENT CONDUCT.
B. ASSUMING ARGUENDO THAT JAL WAS GUILTY OF BREACH, JAL DID NOT ACT
IN A WANTON FRAUDULENT, RECKLESS, OPPRESSIVE OR MALEVOLENT MANNER
AS TO ENTITLE RESPONDENT TO EXEMPLARY DAMAGES.
III.
ASSUMING ARGUENDO THAT RESPONDENT WAS ENTITLED TO AN AWARD OF DAMAGES,
WHETHER OR NOT THE COURT OF APPEALS AWARD OF P750,000 IN DAMAGES WAS
EXCESSIVE AND UNPRECEDENTED.
IV.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING FOR JAL ON
ITSCOUNTERCLAIM. (Underscoring Ours)
Basically, there are three (3) issues to resolve here: (1) whether or not JAL is guilty of contract of carriage;
(2) whether or not respondent is entitled to moral and exemplary damages; and (3) whether or not JAL is
entitled to its counterclaim for damages.
Our Ruling
This Court is not a trier of facts .
Chiefly, the issues are factual. The RTC findings of facts were affirmed by the CA. The CA also gave its nod
to the reasoning of the RTC except as to the awards of damages, which were reduced, and that of
attorney's fees, which was deleted.
We are not a trier of facts. We generally rely upon, and are bound by, the conclusions on this matter of the
lower courts, which are better equipped and have better opportunity to assess the evidence first -hand,
including the testimony of the witnesses.
We have repeatedly held that the findings of fact of the CA are final and conclusive and cannot be reviewed
on appeal to the Supreme Court provided they are based on substantial evidence. We have no jurisdiction,
as a rule, to reverse their findings. Among the exceptions to this rule are: (a) when the conclusion is a
finding grounded entirely on speculations, surmises or conjectures; (b) when the inference made is

manifestly mistaken, absurd or impossible; (c) where there is grave abuse of discretion; (d) when the
judgment is based on a misapprehension of facts; (e) when the findings of facts are conflicting; (f) when the
CA, in making its findings, went beyond the issues of the case and the same is contrary to the admissions
of both appellant and appellee.
The said exceptions, which are being invoked by JAL, are not found here. There is no indication that the
findings of the CA are contrary to the evidence on record or that vital testimonies of JAL's witnesses were
disregarded. Neither did the CA commit misapprehension of facts nor did it fail to consider relevant facts.
Likewise, there was no grave abuse of discretion in the appreciation of facts or mistaken and absurd
inferences.
We thus sustain the coherent facts as established by the courts below, there being no sufficient showing
that the said courts committed reversible error in reaching their conclusions.
JAL is guilty of breach of
contract of carriage.
That respondent purchased a round trip plane ticket from JAL and was issued the corresponding boarding
pass is uncontroverted. His plane ticket, boarding pass, travel authority and personal articles were
subjected to rigid immigration and security procedure. After passing through said immigration and security
procedure, he was allowed by JAL to enter its airplane to fly to Los Angeles, California, U.S.A. via Narita,
Japan. Concisely, there was a contract of carriage between JAL and respondent.
Nevertheless, JAL made respondent get off the plane on his scheduled departure on July 29, 1992. He was
not allowed by JAL to fly. JAL thus failed to comply with its obligation under the contract of carriage.
JAL justifies its action by arguing that there was "a need to verify the authenticity of respondent's travel
document." It alleged that no one from its airport staff had encountered a parole visa before. It further
contended that respondent agreed to fly the next day so that it could first verify his travel document, hence,
there was novation. It maintained that it was not guilty of breach of contract of carriage as respondent was
not able to travel to the United States due to his own voluntary desistance.
We cannot agree. JAL did not allow respondent to fly. It informed respondent that there was a need to first
check the authenticity of his travel documents with the U.S. Embassy. As admitted by JAL, "the flight could
not wait for Mr. Simangan because it was ready to depart."
Since JAL definitely declared that the flight could not wait for respondent, it gave respondent no choice but
to be left behind. The latter was unceremoniously bumped off despite his protestations and valid travel
documents and notwithstanding his contract of carriage with JAL. Damage had already been done when
respondent was offered to fly the next day on July 30, 1992. Said offer did not cure JAL's default.
Considering that respondent was forced to get out of the plane and left behind against his will, he could not
have freely consented to be rebooked the next day. In short, he did not agree to the alleged novation. Since
novation implies a waiver of the right the creditor had before the novation, such waiver must be express. It
cannot be supposed, without clear proof, that respondent had willingly done away with his right to fly on July
29, 1992.
Moreover, the reason behind the bumping off incident, as found by the RTC and CA, was that JAL
personnel imputed that respondent would only use the trip to the United States as a pretext to stay and
work in Japan.
Apart from the fact that respondent's plane ticket, boarding pass, travel authority and personal articles
already passed the rigid immigration and security routines, JAL, as a common carrier, ought to know the
kind of valid travel documents respondent carried. As provided in Article 1755 of the New Civil Code: "A
common carrier is bound to carry the passengers safely as far as human care and foresight can
provide, using the utmost diligence of very cautious persons, with a due regard for all the
circumstances." Thus, We find untenable JAL's defense of "verification of respondent's documents" in its
breach of contract of carriage.
It bears repeating that the power to admit or not an alien into the country is a sovereign act which cannot be
interfered with even by JAL.

In an action for breach of contract of carriage, all that is required of plaintiff is to prove the existence of such
contract and its non-performance by the carrier through the latter's failure to carry the passenger safely to
his destination. Respondent has complied with these twin requisites.
Respondent is entitled to moral and exemplary damages and attorney's fees plus legal interest .
With reference to moral damages, JAL alleged that they are not recoverable in actions ex contractu except
only when the breach is attended by fraud or bad faith. It is contended that it did not act fraudulently or in
bad faith towards respondent, hence, it may not be held liable for moral damages.
As a general rule, moral damages are not recoverable in actions for damages predicated on a breach of
contract for it is not one of the items enumerated under Article 2219 of the Civil Code. As an exception,
such damages are recoverable: (1) in cases in which the mishap results in the death of a passenger, as
provided in Article 1764, in relation to Article 2206(3) of the Civil Code; and (2) in the cases in which the
carrier is guilty of fraud or bad faith, as provided in Article 2220.
The acts committed by JAL against respondent amounts to bad faith. As found by the RTC, JAL breached
its contract of carriage with respondent in bad faith. JAL personnel summarily and insolently ordered
respondent to disembark while the latter was already settled in his assigned seat. He was ordered out of the
plane under the alleged reason that the genuineness of his travel documents should be verified.
These findings of facts were upheld by the CA, to wit:
x x x he was haughtily ejected by appellant. He was certainly embarrassed and humiliated when, in
the presence of other passengers, the appellant's airline staff shouted at him to stand up and
arrogantly asked him to produce his travel papers, without the least courtesy every human being is
entitled to. Then, he was compelled to deplane on the grounds that his papers were fake. His
protestation of having been issued a U.S. visa coupled with his plea to appellant to closely monitor
his movements when the aircraft stops over in Narita, were ignored. Worse, he was made to wait
for many hours at the office of appellant only to be told later that he has valid travel
documents. (Underscoring ours)
Clearly, JAL is liable for moral damages. It is firmly settled that moral damages are recoverable in suits
predicated on breach of a contract of carriage where it is proved that the carrier was guilty of fraud or bad
faith, as in this case. Inattention to and lack of care for the interests of its passengers who are entitled to its
utmost consideration, particularly as to their convenience, amount to bad faith which entitles the passenger
to an award of moral damages. What the law considers as bad faith which may furnish the ground for an
award of moral damages would be bad faith in securing the contract and in the execution thereof, as well as
in the enforcement of its terms, or any other kind of deceit.
JAL is also liable for exemplary damages as its above-mentioned acts constitute wanton, oppressive and
malevolent acts against respondent. Exemplary damages, which are awarded by way of example or
correction for the public good, may be recovered in contractual obligations, as in this case, if defendant
acted in wanton, fraudulent, reckless, oppressive, or malevolent manner.
Exemplary damages are designed by our civil law to permit the courts to reshape behaviour that is socially
deleterious in its consequence by creating negative incentives or deterrents against such behaviour. In
requiring compliance with the standard of extraordinary diligence, a standard which is, in fact, that of the
highest possible degree of diligence, from common carriers and in creating a presumption of negligence
against them, the law seeks to compel them to control their employees, to tame their reckless instincts and
to force them to take adequate care of human beings and their property.
Neglect or malfeasance of the carrier's employees could give ground for an action for damages.
Passengers have a right to be treated by the carrier's employees with kindness, respect, courtesy and due
consideration and are entitled to be protected against personal misconduct, injurious language, indignities
and abuses from such employees.
The assessment of P500,000.00 as moral damages and P100,000.00 as exemplary damages in
respondent's favor is, in Our view, reasonable and realistic. This award is reasonably sufficient to indemnify
him for the humiliation and embarrassment he suffered. This also serves as an example to discourage the
repetition of similar oppressive acts.

With respect to attorney's fees, they may be awarded when defendant's act or omission has compelled
plaintiff to litigate with third persons or to incur expenses to protect his interest. The Court, in Construction
Development Corporation of the Philippines v. Estrella, citing Traders Royal Bank Employees UnionIndependent v. National Labor Relations Commission, elucidated thus:
There are two commonly accepted concepts of attorney's fees, the so-called ordinary and
extraordinary. In its ordinary concept, an attorney's fee is the reasonable compensation paid to a
lawyer by his client for the legal services he has rendered to the latter. The basis of this
compensation is the fact of his employment by and his agreement with the client.
In its extraordinary concept, an attorney's fee is an indemnity for damages ordered by the
court to be paid by the losing party in a litigation. The basis of this is any of the cases provided
by law where such award can be made, such as those authorized in Article 2208, Civil Code,
and is payable not to the lawyer but to the client, unless they have agreed that the award
shall pertain to the lawyer as additional compensation or as part thereof .
It was therefore erroneous for the CA to delete the award of attorney's fees on the ground that the record is
devoid of evidence to show the cost of the services of respondent's counsel. The amount is actually
discretionary upon the Court so long as it passes the test of reasonableness. They may be recovered as
actual or compensatory damages when exemplary damages are awarded and whenever the court deems it
just and equitable, as in this case.
Considering the factual backdrop of this case, attorney's fees in the amount of P200,000.00 is reasonably
modest.
The above liabilities of JAL in the total amount of P800,000.00 earn legal interest pursuant to the Court's
ruling inConstruction Development Corporation of the Philippines v. Estrella, citing Eastern Shipping Lines,
Inc. v. Court of Appeals, to wit:
Regarding the imposition of legal interest at the rate of 6% from the time of the filing of the
complaint, we held in Eastern Shipping Lines, Inc. v. Court of Appeals, that when an obligation,
regardless of its source,i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for payment of interest in the concept of actual and
compensatory damages, subject to the following rules, to wit 1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an
interest on the amount of damages awarded may be imposed at the discretion of the
court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably
established at the time the demand is made, the interest shall begin to run only from
the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained) . The actual base for
the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit. (Emphasis supplied and citations omitted)
Accordingly, in addition to the said total amount of P800,000.00, JAL is liable to pay respondent legal

interest. Pursuant to the above ruling of the Court, the legal interest is 6% and it shall be reckoned from
September 21, 2000 when the RTC rendered its judgment. From the time this Decision becomes final and
executory, the interest rate shall be 12% until its satisfaction.
JAL is not entitled to its counterclaim for damages.
The counterclaim of JAL in its Answer is a compulsory counterclaim for damages and attorney's fees arising
from the filing of the complaint. There is no mention of any other counter claims.
This compulsory counterclaim of JAL arising from the filing of the complaint may not be granted inasmuch
as the complaint against it is obviously not malicious or unfounded. It was filed by respondent precisely to
claim his right to damages against JAL. Well-settled is the rule that the commencement of an action does
not per se make the action wrongful and subject the action to damages, for the law could not have meant to
impose a penalty on the right to litigate.
We reiterate case law that if damages result from a party's exercise of a right, it is damnum absque injuria.
Lawful acts give rise to no injury. Walang perhuwisyong maaring idulot ang paggamit sa sariling
karapatan.
During the trial, however, JAL presented a witness who testified that JAL suffered further damages.
Allegedly, respondent caused the publications of his subject complaint against JAL in the newspaper for
which JAL suffered damages.
Although these additional damages allegedly suffered by JAL were not incorporated in its Answer as they
arose subsequent to its filing, JAL's witness was able to testify on the same before the RTC. Hence,
although these issues were not raised by the pleadings, they shall be treated in all respects as if they had
been raised in the pleadings.
As provided in Section 5, Rule 10 of the Rules of Court, "(w)hen issues not raised by the pleadings are tried
with the express or implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings."
Nevertheless, JAL's counterclaim cannot be granted.
JAL is a common carrier. JAL's business is mainly with the traveling public. It invites people to avail
themselves of the comforts and advantages it offers. Since JAL deals with the public, its bumping off of
respondent without a valid reason naturally drew public attention and generated a public issue.
The publications involved matters about which the public has the right to be informed because they relate to
a public issue. This public issue or concern is a legitimate topic of a public comment that may be validly
published.
Assuming that respondent, indeed, caused the publication of his complaint, he may not be held liable for
damages for it. The constitutional guarantee of freedom of the speech and of the press includes fair
commentaries on matters of public interest. This is explained by the Court in Borjal v. Court of Appeals, to
wit:
To reiterate, fair commentaries on matters of public interest are privileged and constitute a valid
defense in an action for libel or slander. The doctrine of fair comment means that while in general
every discreditable imputation publicly made is deemed false, because every man is presumed
innocent until his guilt is judicially proved, and every false imputation is deemed malicious,
nevertheless, when the discreditable imputation is directed against a public person in his public
capacity, it is not necessarily actionable. In order that such discreditable imputation to a public
official may be actionable, it must either be a false allegation of fact or a comment based on a
false supposition. If the comment is an expression of opinion, based on established facts, then it is
immaterial that the opinion happens to be mistaken, as long as it might reasonably be inferred
from the facts. (Citations omitted and underscoring ours)
Even though JAL is not a public official, the rule on privileged commentaries on matters of public interest
applies to it. The privilege applies not only to public officials but extends to a great variety of subjects, and
includes matters of public concern, public men, and candidates for office.

Hence, pursuant to the Borjal case, there must be an actual malice in order that a discreditable imputation
to a public person in his public capacity or to a public official may be actionable. To be considered
malicious, the libelous statements must be shown to have been written or published with the knowledge that
they are false or in reckless disregard of whether they are false or not.
Considering that the published articles involve matters of public interest and that its expressed opinion is
not malicious but based on established facts, the imputations against JAL are not actionable. Therefore,
JAL may not claim damages for them.
WHEREFORE, the petition is DENIED. The appealed Decision of the Court of Appeals is AFFIRMED WITH
MODIFICATION. As modified, petitioner Japan Airlines is ordered to pay respondent Jesus Simangan the
following: (1) P500,000.00 as moral damages; (2) P100,000.00 as exemplary damages; and
(3) P200,000.00 as attorney's fees.
The total amount adjudged shall earn legal interest at the rate of 6% per annum from the date of judgment
of the Regional Trial Court on September 21, 2000 until the finality of this Decision. From the time this
Decision becomes final and executory, the unpaid amount, if any, shall earn legal interest at the rate of 12%
per annum until its satisfaction.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 171998

October 20, 2010

ANAMER SALAZAR, Petitioner,

vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review seeking to annul and set aside the Decision dated September 29, 2005
and the Resolution dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.

The facts, as found by the Court of Appeals, are not disputed, thus:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice
and other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached
by Isagani Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar
accompanied the two to J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y.
Bros. 300 cavans of rice worthP214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros.
Prudential Bank Check No. 067481 dated October 15, 1996 issued by Nena Jaucian Timario in the amount
of P214,000.00 with the assurance that the check is good as cash. On that assurance, J.Y. Bros. parted
with 300 cavans of rice to Salazar. However, upon presentment, the check was dishonored due to "closed
account."
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement
cross Solid Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in
the amount ofP214,000.00 but which, just the same, bounced due to insufficient funds. When despite the
demand letter dated February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter
charged Salazar and Timario with the crime of estafa before the Regional Trial Court of Legaspi City,
docketed as Criminal Case No. 7474.
After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to
evidence. On November 19, 2001, the court a quo rendered an Order, the dispositive portion of which
reads:
WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of the crime
charged but is hereby held liable for the value of the 300 bags of rice. Accused Anamer D. Salazar is
therefore ordered to pay J.Y. Brothers Marketing Corporation the sum of P214,000.00. Costs against the
accused.
SO ORDERED.
Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to present
evidence thereon. The motion was denied. Accused went up to the Supreme Court on a petition for review
on certiorari under Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision dated
September 23, 2003, the High Court ruled:
IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19, 2001 and
January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City, Branch 5, is
hereby DIRECTED to set Criminal Case No. 7474 for the continuation of trial for the reception of the
evidence-in-chief of the petitioner on the civil aspect of the case and for the rebuttal evidence of the private
complainant and the sur-rebuttal evidence of the parties if they opt to adduce any.
SO ORDERED.
The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspect
of the criminal case.
On April 1, 2004, the RTC rendered its Decision, the dispositive portion of which reads:
WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazar
the civil aspect of the above-entitled case. No pronouncement as to costs.
Place into the files (archive) the record of the above-entitled case as against the other accused Nena
Jaucian Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and
fix the amount of the bail bond for her provisional liberty at 59,000.00 pesos.
SO ORDERED.
The RTC found that the Prudential Bank check drawn by Timario for the amount of P214,000.00 was
payable to the order of respondent, and such check was a negotiable order instrument; that petitioner was
not the payee appearing in the check, but respondent who had not endorsed the check, much less
delivered it to petitioner. It then found that petitioners liability should be limited to the allegation in the
amended information that "she endorsed and negotiated said check," and since she had never been the

10

holder of the check, petitioner's signing of her name on the face of the dorsal side of the check did not
produce the technical effect of an indorsement arising from negotiation. The RTC ruled that after the
Prudential Bank check was dishonored, it was replaced by a Solid Bank check which, however, was also
subsequently dishonored; that since the Solid Bank check was a crossed check, which meant that such
check was only for deposit in payees account, a condition that rendered such check non-negotiable, the
substitution of a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essential
change which had the effect of discharging from the obligation whoever may be the endorser of the
negotiable check. The RTC concluded that the absence of negotiability rendered nugatory the obligation
arising from the technical act of indorsing a check and, thus, had the effect of novation; and that the
ultimate effect of such substitution was to extinguish the obligation arising from the issuance of the
Prudential Bank check.
Respondent filed an appeal with the CA on the sole assignment of error that:
IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY
INDORSING THE CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT PRODUCE
THE TECHNICAL EFFECT OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT
INCUR CIVIL LIABILITY.
After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, the
CA rendered its assailed Decision, the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision is
REVERSED and SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amount
of P214,000.00, plus interest at the legal rate from the written demand until full payment. Costs against the
appellee.
In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a
Solid Bank check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of rice
bought from respondent. The CA, applying Sections 63, 66 and 29 of the Negotiable Instruments Law,
found that petitioner was considered an indorser of the checks paid to respondent and considered her as an
accommodation indorser, who was liable on the instrument to a holder for value, notwithstanding that such
holder at the time of the taking of the instrument knew her only to be an accommodation party.
Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006.
Hence this petition, wherein petitioner raises the following assignment of errors:
1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCE
OF THE SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH
WOULD HAVE RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THE
ISSUANCE OF THE LATTER CHECK.
2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL
TRIAL COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE PETITIONER
THE CIVIL ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF
OBLIGATION ARISING FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK.
3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT
TO LACK OR EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FOR
RECONSIDERATION OF THE PETITIONER ON THE GROUND THAT THE ISSUE RAISED
THEREIN HAD ALREADY BEEN PASSED UPON AND CONSIDERED IN THE DECISION
SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND IN FACT SUCH ISSUE HAD NOT
BEEN RESOLVED AS YET.
Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the
respondent, in replacement of the dishonored Prudential Bank check, amounted to novation that discharged
the latter check; that respondent's acceptance of the Solid Bank check, notwithstanding its eventual
dishonor by the drawee bank, had the effect of erasing whatever criminal responsibility, under Article 315 of
the Revised Penal Code, the drawer or indorser of the Prudential Bank check would have incurred in the
issuance thereof in the amount of P214,000.00; and that a check is a contract which is susceptible to a
novation just like any other contract.

11

Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto.
We find no merit in this petition.
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or
accepted for his accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
(e) When the principal debtor becomes the holder of the instrument at or after maturity in his own
right. (Emphasis ours)
And, under Article 1231 of the Civil Code, obligations are extinguished:
xxxx
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored
Prudential bank check resulted to novation which discharged the latter check is unmeritorious.
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc. , we
stated the concept of novation, thus:
x x x Novation is done by the substitution or change of the obligation by a subsequent one which
extinguishes the first, either by changing the object or principal conditions, or by substituting the person of
the debtor, or by subrogating a third person in the rights of the creditor. Novation may:
[E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intention
of the parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases
where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation
as the moving consideration for the emergence of the new one. Implied novation necessitates that the
incompatibility between the old and new obligation be total on every point such that the old obligation is
completely superceded by the new one. The test of incompatibility is whether they can stand together, each
one having an independent existence; if they cannot and are irreconcilable, the subsequent obligation
would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation
and, second, creating a new one in its stead. This kind of novation presupposes a confluence of four
essential requisites: (1) a previous valid obligation, (2) an agreement of all parties concerned to a new
contract, (3) the extinguishment of the old obligation, and (4) the birth of a valid new obligation. Novation is
merely modificatory where the change brought about by any subsequent agreement is merely incidental to
the main obligation (e.g., a change in interest rates or an extension of time to pay; in this instance, the new
agreement will not have the effect of extinguishing the first but would merely supplement it or supplant
some but not all of its provisions.)
The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, adds other obligations not incompatible with the old ones or the new
contract merely supplements the old one.
In Nyco Sales Corporation v. BA Finance Corporation, we found untenable petitioner Nyco's claim that
novation took place when the dishonored BPI check it endorsed to BA Finance Corporation was
subsequently replaced by a Security Bank check, and said:

12

There are only two ways which indicate the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. First, novation must be explicitly stated
and declared in unequivocal terms as novation is never presumed. Secondly, the old and the new
obligations must be incompatible on every point.1avvphi1 The test of incompatibility is whether or not the
two obligations can stand together, each one having its independent existence. If they cannot, they are
incompatible and the latter obligation novates the first. In the instant case, there was no express agreement
that BA Finance's acceptance of the SBTC check will discharge Nyco from liability. Neither is there
incompatibility because both checks were given precisely to terminate a single obligation arising from
Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is inapplicable to
this case.
In this case, respondents acceptance of the Solid Bank check, which replaced the dishonored Prudential
Bank check, did not result to novation as there was no express agreement to establish that petitioner was
already discharged from his liability to pay respondent the amount of P214,000.00 as payment for the 300
bags of rice. As we said, novation is never presumed, there must be an express intention to novate. In fact,
when the Solid Bank check was delivered to respondent, the same was also indorsed by petitioner which
shows petitioners recognition of the existing obligation to respondent to pay P214,000.00 subject of the
replaced Prudential Bank check.
Moreover, respondents acceptance of the Solid Bank check did not result to any incompatibility, since the
two checks Prudential and Solid Bank checks were precisely for the purpose of paying the amount
of P214,000.00,i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed,
there was no substantial change in the object or principal condition of the obligation of petitioner as the
indorser of the check to pay the amount of P214,000.00. It would appear that respondent accepted the
Solid Bank check to give petitioner the chance to pay her obligation.
Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check being a
crossed check, which replaced the dishonored Prudential Bank check, a negotiable check, is a new
obligation in lieu of the old obligation arising from the issuance of the Prudential Bank check, since there
was an essential change in the circumstance of each check.
Such argument deserves scant consideration.
Among the different types of checks issued by a drawer is the crossed check. The Negotiable Instruments
Law is silent with respect to crossed checks, although the Code of Commerce makes reference to such
instruments. We have taken judicial cognizance of the practice that a check with two parallel lines in the
upper left hand corner means that it could only be deposited and could not be converted into cash. Thus,
the effect of crossing a check relates to the mode of payment, meaning that the drawer had intended the
check for deposit only by the rightful person, i.e., the payee named therein. The change in the mode of
paying the obligation was not a change in any of the objects or principal condition of the contract for
novation to take place.
Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for
payment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bank
check was not extinguished and the Prudential Bank check was not discharged. Thus, we found no
reversible error committed by the CA in holding petitioner liable as an accommodation indorser for the
payment of the dishonored Prudential Bank check.
WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution dated
March 2, 2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice

13

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 159097

July 5, 2010

METROPOLITAN BANK AND TRUST COMPANY, Petitioner,

vs.
RURAL BANK OF GERONA, INC. Respondent.
DECISION
BRION, J.:
Petitioner Metropolitan Bank and Trust Company (Metrobank) filed this Petition for Review on
Certiorari under Rule 45 of the Rules of Court to challenge the Court of Appeals (CA) decision dated
December 17, 2002 and the resolution dated July 14, 2003 in CA-G.R. CV No. 46777. The CA decision set
aside the July 7, 1994 decision of the Regional Trial Court (RTC) of Tarlac, Branch 65, in Civil Case No.
6028 (a collection case filed by Metrobank against respondent Rural Bank of Gerona, Inc. [RBG]), and
ordered the remand of the case to include the Central Bank of the Philippines (Central Bank) as a
necessary party.
THE FACTUAL ANTECEDENTS
RBG is a rural banking corporation organized under Philippine laws and located in Gerona, Tarlac. In the
1970s, the Central Bank and the RBG entered into an agreement providing that RBG shall facilitate the loan
applications of farmers-borrowers under the Central Bank-International Bank for Reconstruction and
Developments (IBRDs) 4th Rural Credit Project. The agreement required RBG to open a separate bank
account where the IBRD loan proceeds shall be deposited. The RBG accordingly opened a special savings
account with Metrobanks Tarlac Branch. As the depository bank of RBG, Metrobank was designated to

14

receive the credit advice released by the Central Bank representing the proceeds of the IBRD loan of the
farmers-borrowers; Metrobank, in turn, credited the proceeds to RBGs special savings account for the
latters release to the farmers-borrowers.
On September 27, 1978, the Central Bank released a credit advice in Metrobanks favor and accordingly
credited Metrobanks demand deposit account in the amount of P178,652.00, for the account of RBG. The
amount, which was credited to RBGs special savings account represented the approved loan application of
farmer-borrower Dominador de Jesus. RBG withdrew the P178,652.00 from its account.
On the same date, the Central Bank approved the loan application of another farmer-borrower, Basilio
Panopio, for P189,052.00, and credited the amount to Metrobanks demand deposit account. Metrobank, in
turn, credited RBGs special savings account. Metrobank claims that the RBG also withdrew the entire
credited amount from its account.
On October 3, 1978, the Central Bank approved Ponciano Lagmans loan application for P220,000.00. As
with the two other IBRD loans, the amount was credited to Metrobanks demand deposit account, which
amount Metrobank later credited in favor of RBGs special savings account. Of the P220,000.00, RBG only
withdrew P75,375.00.
On November 3, 1978, more than a month after RBG had made the above withdrawals from its account
with Metrobank, the Central Bank issued debit advices, reversing all the approved IBRD loans. The Central
Bank implemented the reversal by debiting from Metrobanks demand deposit account the amount
corresponding to all three IBRD loans.
Upon receipt of the November 3, 1978 debit advices, Metrobank, in turn, debited the following amounts
from RBGs special savings account: P189,052.00, P115,000.00, and P8,000.41. Metrobank, however,
claimed that these amounts were insufficient to cover all the credit advices that were reversed by the
Central Bank. It demanded payment from RBG which could make partial payments. As of October 17, 1979,
Metrobank claimed that RBG had an outstanding balance of P334,220.00. To collect this amount, it filed a
complaint for collection of sum of money against RBG before the RTC, docketed as Civil Case No. 6028.
In its July 7, 1994 decision, the RTC ruled for Metrobank, finding that legal subrogation had ensued:
[Metrobank] had allowed releases of the amounts in the credit advices it credited in favor of [RBGs special
savings account] which credit advices and deposits were under its supervision. Being faulted in these acts
or omissions, the Central Bank [sic] debited these amounts against [Metrobanks] demand [deposit]
reserve; thus[, Metrobanks] demand deposit reserves diminished correspondingly, [Metrobank as of this
time,] suffers prejudice in which case legal subrogation has ensued.
It thus ordered RBG to pay Metrobank the sum of P334,200.00, plus interest at 14% per annum until the
amount is fully paid.
On appeal, the CA noted that this was not a case of legal subrogation under Article 1302 of the Civil Code.
Nevertheless, the CA recognized that Metrobank had a right to be reimbursed of the amount it had paid and
failed to recover, as it suffered loss in an agreement that involved only the Central Bank and the RBG. It
clarified, however, that a determination still had to be made on who should reimburse Metrobank. Noting
that no evidence exists why the Central Bank reversed the credit advices it had previously confirmed, the
CA declared that the Central Bank should be impleaded as a necessary party so it could shed light on the
IBRD loan reversals. Thus, the CA set aside the RTC decision, and remanded the case to the trial court for
1
further proceedings after the Central Bank is impleaded as a necessary party. After the CA denied its
motion for reconsideration, Metrobank filed the present petition for review on certiorari.
THE PETITION FOR REVIEW ON CERTIORARI
Metrobank disagrees with the CAs ruling to implead the Central Bank as a necessary party and to remand
the case to the RTC for further proceedings. It argues that the inclusion of the Central Bank as party to the
case is unnecessary since RBG has already admitted its liability for the amount Metrobank failed to recover.
In two letters, RBGs President/Manager made proposals to Metrobank for the repayment of the amounts
involved. Even assuming that no legal subrogation took place, Metrobank claims that RBGs letters more
than sufficiently proved its liability.
Metrobank additionally contends that a remand of the case would unduly delay the proceedings. The
transactions involved in this case took place in 1978, and the case was commenced before the RTC more

15

than 20 years ago. The RTC resolved the complaint for collection in 1994, while the CA decided the appeal
in 2002. To implead Central Bank, as a necessary party in the case, means a return to square one and the
restart of the entire proceedings.
THE COURTS RULING
The petition is impressed with merit.
A basic first step in resolving this case is to determine who the liable parties are on the IBRD loans that the
Central Bank extended. The Terms and Conditions of the IBRD 4th Rural Credit Project (Project Terms and
Conditions) executed by the Central Bank and the RBG shows that the farmers-borrowers to whom credits
have been extended, are primarily liable for the payment of the borrowed amounts. The loans were
extended through the RBG which also took care of the collection and of the remittance of the collection to
the Central Bank. RBG, however, was not a mere conduit and collector.1avvphil While the farmersborrowers were the principal debtors, RBG assumed liability under the Project Terms and Conditions by
solidarily binding itself with the principal debtors to fulfill the obligation.1awphi1
How RBG profited from the transaction is not clear from the records and is not part of the issues before us,
but if it delays in remitting the amounts due, the Central Bank imposed a 14% per annum penalty rate on
RBG until the amount is actually remitted. The Central Bank was further authorized to deduct the amount
due from RBGs demand deposit reserve should the latter become delinquent in payment. On these points,
paragraphs 5 and 6 of the Project Terms and Conditions read:
5. Collection received representing repayments of borrowers shall be immediately remitted to the Central
Bank, otherwise[,] the Rural Bank/SLA shall be charged a penalty of fourteen [percent] (14%) p.a. until date
of remittance.
6. In case the rural bank becomes delinquent in the payment of amortizations due[,] the Central Bank is
authorized to deduct the corresponding amount from the rural banks demand deposit reserve at any time to
cover any delinquency. [Emphasis supplied.]
Based on these arrangements, the Central Banks immediate recourse, therefore should have been against
the farmers-borrowers and the RBG; thus, it erred when it deducted the amounts covered by the debit
advices from Metrobanks demand deposit account. Under the Project Terms and Conditions, Metrobank
had no responsibility over the proceeds of the IBRD loans other than serving as a conduit for their transfer
from the Central Bank to the RBG once credit advice has been issued. Thus, we agree with the CAs
conclusion that the agreement governed only the parties involved the Central Bank and the RBG.
Metrobank was simply an outsider to the agreement. Our disagreement with the appellate court is in its
conclusion that no legal subrogation took place; the present case, in fact, exemplifies the circumstance
contemplated under paragraph 2, of Article 1302 of the Civil Code which provides:
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtors knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of
the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latters share. [Emphasis
supplied.]
As discussed, Metrobank was a third party to the Central Bank-RBG agreement, had no interest except as a
conduit, and was not legally answerable for the IBRD loans. Despite this, it was Metrobanks demand
deposit account, instead of RBGs, which the Central Bank proceeded against, on the assumption perhaps
that this was the most convenient means of recovering the cancelled loans. That Metrobanks payment was
involuntarily made does not change the reality that it was Metrobank which effectively answered for RBGs
obligations.
Was there express or tacit approval by RBG of the payment enforced against Metrobank? After Metrobank
received the Central Banks debit advices in November 1978, it (Metrobank) accordingly debited the
amounts it could from RBGs special savings account without any objection from RBG. RBGs President
and Manager, Dr. Aquiles Abellar, even wrote Metrobank, on August 14, 1979, with proposals regarding

16

possible means of settling the amounts debited by Central Bank from Metrobanks demand deposit
account. These instances are all indicative of RBGs approval of Metrobanks payment of the IBRD loans.
That RBGs tacit approval came after payment had been made does not completely negate the legal
subrogation that had taken place.
Article 1303 of the Civil Code states that subrogation transfers to the person subrogated the credit with all
the rights thereto appertaining, either against the debtor or against third persons. As the entity against
which the collection was enforced, Metrobank was subrogated to the rights of Central Bank and has a
cause of action to recover from RBG the amounts it paid to the Central Bank, plus 14% per annum interest.
Under this situation, impleading the Central Bank as a party is completely unnecessary. We note that the
CA erroneously believed that the Central Banks presence is necessary "in order x x x to shed light on the
matter of reversals made by it concerning the loan applications of the end users and to have a complete
determination or settlement of the claim." In so far as Metrobank is concerned, however, the Central Banks
presence and the reasons for its reversals of the IBRD loans are immaterial after subrogation has taken
place; Metrobanks interest is simply to collect the amounts it paid the Central Bank. Whatever cause of
action RBG may have against the Central Bank for the unexplained reversals and any undue deductions is
for RBG to ventilate as a third-party claim; if it has not done so at this point, then the matter should be dealt
with in a separate case that should not in any way further delay the disposition of the present case that had
been pending before the courts since 1980.
While we would like to fully and finally resolve this case, certain factual matters prevent us from doing so.
Metrobank contends in its petition that it credited RBGs special savings account with three amounts
corresponding to the three credit advices issued by the Central Bank: the P178,652.00 for Dominador de
Jesus; the P189,052.00 for Basilio Panopio; and the P220,000.00 for Ponciano Lagman. Metrobank claims
that all of the three credit advices were subsequently reversed by the Central Bank, evidenced by three
debit advices. The records, however, contained only the credit and debit advices for the amounts set aside
for de Jesus and Lagman; nothing in the findings of fact by the RTC and the CA referred to the amount set
aside for Panopio.
Thus, what were sufficiently proven as credited and later on debited from Metrobanks demand deposit
account were only the amounts of P178,652.00 and P189,052.00. With these amounts combined, RBGs
liability would amount to P398,652.00 the same amount RBG acknowledged as due to Metrobank in its
August 14, 1979 letter. Significantly, Metrobank likewise quoted this amount in its July 11, 1979 and July
26, 1979 demand letters to RBG and its Statement of Account dated December 23, 1982.
RBG asserts that it made partial payments amounting to P145,197.40, but neither the RTC nor the CA
made a conclusive finding as to the accuracy of this claim. Although Metrobank admitted that RBG indeed
made partial payments, it never mentioned the actual amount paid; neither did it state that the P145,197.40
was part of theP312,052.41 that, it admitted, it debited from RBGs special savings account.
Deducting P312,052.41 (representing the amounts debited from RBGs special savings account, as
admitted by Metrobank) from P398,652.00 amount due to Metrobank from RBG, the difference would only
be P86,599.59. We are, therefore, at a loss on how Metrobank computed the amount of P334,220.00 it
claims as the balance of RBGs loan. As this Court is not a trier of facts, we deem it proper to remand this
factual issue to the RTC for determination and computation of the actual amount RBG owes to Metrobank,
plus the corresponding interest and penalties.
WHEREFORE, we GRANT the petition for review on certiorari, and REVERSE the decision and the
resolution of the Court of Appeals, in CA-G.R. CV No. 46777, promulgated on December 17, 2002 and July
14, 2003, respectively. We AFFIRM the decision of the Regional Trial Court, Branch 65, Tarlac,
promulgated on July 7, 1994, insofar as it found respondent liable to the petitioner Metropolitan Bank and
Trust Company, but order the REMAND of the case to the trial court to determine the actual amounts due to
the petitioner. Costs against respondent Rural Bank of Gerona, Inc.
SO ORDERED.
ARTURO D. BRION
Associate Justice

17

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-48797

July 30, 1943

FUA CAM LU, plaintiff-appellee,

vs.
YAP FAUCO and YAP SINGCO, defendants-appellants.
Vicente J. Francisco for petitioner.
M.H. de Joya for respondents.
The plaintiff-appellee, Fua Cam Lu, obtained in civil case No. 42125 of the Court of First Instance of Manila
a judgment sentencing the defendants-appellants, Yap Fauco and Yap Singco, to pay P1,538.04 with legal
interest and costs. By virtue of a writ of execution, a certain parcel of land belonging to the appellants,
assessed at P3,550 and situated in Donsol, Sorsogon was levied upon the provincial sheriff of Sorsogon
who, on November 15, 1933, made a notice, duly posted in three conspicuous places in the municipalities
of Donsol and Sorsogon and published in the Mamera Press, that said land would be sold at public auction
on December 12, 1933. On December 16, 1933, the appellants executed a mortgage in favor of the
appellee, wherein it was stipulated that their obligation under the judgment in civil case No. 41225 was

18

reduced to P1,200 which was made payable in four installments of P300 during the period commencing on
February 8, 1934, and ending on August 8, 1935l that to secure the payment of the said P1,200, a camarin
belonging to the appellants and built on the above-mentioned land, was mortgaged to the appellee; that in
case the appellants defaulted in the payment of any of the installments, they would pay ten per cent of the
unpaid balance as attorney's fees. plus the costs of the action to be brought by the appellee by reason of
such default, and the further amount of P338, representing the discount conceded to the appellants. As a
result of the agreement thus reached by the parties, the sale of the land advertised by the provincial sheriff
did not take place. However, pursuant to an alias writ of execution issued by the Court of First instance of
manila in civil case No. 42125 on March 31, 1934, the provincial sheriff, without publishing a new notice,
sold said land at a public auction held on May 28, 1934, to the appellee for P1,923.32. On June 13, 1935,
the provincial sheriff executed a final deed in favor of the appellee. On August 29, 1939, the appellee
instituted the present action in the Court of First Instance of Sorsogon against the appellants in view of their
refusal to recognize appellee's title and to vacate the land. The appellants relied on the legal defenses that
their obligation under the judgment in civil case No. 42125 was novated by the mortgage executed by them
in favor of the appellee and that the sheriffs sale was void for lack of necessary publication. These
contentions were overruled by the lower court which rendered judgment declaring the appellee to be the
owner of the land and ordering the appellants to deliver the same to him, without special pronouncement as
to costs. The appellants seek the reversal of this judgment.
We concur in the theory that appellants liability under the judgment in civil case No. 42125 had been
extinguished by the settlement evidenced by the mortgage executed by them in favor of the appellee on
December 16, 1933. Although said mortgage did not expressly cancel the old obligation, this was impliedly
novated by reason of incompatibly resulting from the fact that, whereas the judgment was for P1,538.04
payable at one time, did not provide for attorney's fees, and was not secured, the new obligation is or
P1,200 payable in installments, stipulated for attorney's fees, and is secured by a mortgage. The appellee,
however, argues that the later agreement merely extended the time of payment and did not take away his
concurrent right to have the judgment executed. This court not have been the purpose for executive the
mortgage, because it was therein recited that the appellants promised to pay P1,200 to the appellee as a
settlement of the judgment in civil case No. 42125 (en forma de transaccion de la decision . . . en el asunto
civil No. 42125). Said judgment cannot be said to have been settled, unless it was extinguished.
Moreover, the sheriff's sale in favor of the appellee is void because no notice thereof was published other
than that which appeared in the Mamera Press regarding the sale to be held on December 12, 1933. Lack
of new publication is shown by appellee's own evidence and the issue, though not raised in the pleadings,
was thereby tried by implied consent of the parties, emphasized by the appellants in the memorandum filed
by them in the lower court and squarely threshed out in this Court by both the appellants and the appellee.
The latter had, besides, admitted that there was no new publication, and so much so that in his brief he
merely resorted to the argument that "section 460 of Act 190 authorized the sheriff to adjourn any sale upon
execution to any date agreed upon in writing by the parties . . . and does not require the sheriff to publish
anew the public sale which was adjourned." The appellee has correctly stated the law but has failed to show
that it supports his side, for it is not pretended that there was any written agreement between the parties to
adjourn the sale advertised for December 12, 1933, to May 28, 1934. Neither may it be pretended that the
sale in favor of the appellee was by virtue of a mere adjournment, it appearing that it was made pursuant to
an alias writ of execution. Appellee's admission has thus destroyed the legal presumption that official duty
was regularly performed.
The appealed judgment is, therefore, reversed and the defendants-appellants, who are hereby declared to
be the owners of the land in question are absolved from the complaint, with costs against the appellee. So
ordered.
Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

19

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-29981 April 30, 1971

EUSEBIO S. MILLAR, petitioner,
vs.
THE HON. COURT OF APPEALS and ANTONIO P. GABRIEL, respondents.
CASTRO, J.:
On February 11, 1956, Eusebio S. Millar (hereinafter referred to as the petitioner) obtained a favorable
judgment from the Court of First Instance of Manila, in civil case 27116, condemning Antonio P. Gabriel
(hereinafter referred to as the respondent) to pay him the sum of P1,746.98 with interest at 12% per annum
from the date of the filing of the complaint, the sum of P400 as attorney's fees, and the costs of suit. From
the said judgment, the respondent appealed to the Court of Appeals which, however, dismissed the appeal
on January 11, 1957.
Subsequently, on February 15, 1957, after remand by the Court of Appeals of the case, the petitioner
moved ex parte in the court of origin for the issuance of the corresponding writ of execution to enforce the
judgment. Acting upon the motion, the lower court issued the writ of execution applied for, on the basis of
which the sheriff of Manila seized the respondent's Willy's Ford jeep (with motor no. B-192297 and plate no.
7225, Manila, 1956).
The respondent, however, pleaded with the petitioner to release the jeep under an arrangement whereby
the respondent, to secure the payment of the judgement debt, agreed to mortgage the vehicle in favor of
the petitioner. The petitioner agreed to the arrangement; thus, the parties, on February 22, 1957, executed
a chattel mortgage on the jeep, stipulating, inter alia, that
This mortgage is given as security for the payment to the said EUSEBIO S. MILLAR,
mortgagee, of the judgment and other incidental expenses in Civil Case No. 27116 of the
Court of First Instance of Manila against Antonio P. Gabriel, MORTGAGOR, in the
amount of ONE THOUSAND SEVEN HUNDRED (P1,700.00) PESOS, Philippine
currency, which MORTGAGOR agrees to pay as follows:
March 31, 1957 EIGHT HUNDRED FIFTY (P850) PESOS;
April 30, 1957 EIGHT HUNDRED FIFTY (P850.00) PESOS.
Upon failure of the respondent to pay the first installment due on March 31, 1957, the petitioner obtained an
alias writ of execution. This writ which the sheriff served on the respondent only on May 30, 1957 after
the lapse of the entire period stipulated in the chattel mortgage for the respondent to comply with his
obligation was returned unsatisfied.
So on July 17, 1957 and on various dates thereafter, the lower court, at the instance of the petitioner,
issued several alias writs, which writs the sheriff also returned unsatisfied. On September 20, 1961, the
petitioner obtained a fifth alias writ of execution. Pursuant to this last writ, the sheriff levied on certain
personal properties belonging to the respondent, and then scheduled them for execution sale.
However, on November 10, 1961, the respondent filed an urgent motion for the suspension of the execution
sale on the ground of payment of the judgment obligation. The lower court, on November 11, 1961, ordered
the suspension of the execution sole to afford the respondent the opportunity to prove his allegation of
payment of the judgment debt, and set the matter for hearing on November 25, 1961. After hearing, the
lower court, on January 25, 1962, issued an order the dispositive portion of which reads:
IN VIEW WHEREOF, execution reiterated for P1,700.00 plus costs of execution.

20

The lower court ruled that novation had taken place, and that the parties had executed the chattel mortgage
only "to secure or get better security for the judgment.
The respondent duly appealed the aforesaid order to the Court of Appeals, which set aside the order of
execution in a decision rendered on October 17, 1968, holding that the subsequent agreement of the
parties impliedly novated the judgment obligation in civil case 27116.
The appellate court stated that the following circumstances sufficiently demonstrate the incompatibility
between the judgment debt and the obligation embodied in the deed of chattel mortgage, warranting a
conclusion of implied novation:
1. Whereas the judgment orders the respondent to pay the petitioner the sum of P1,746.98 with interest at
12% per annum from the filing of the complaint, plus the amount of P400 and the costs of suit, the deed of
chattel mortgage limits the principal obligation of the respondent to P1,700;
2. Whereas the judgment mentions no specific mode of payment of the amount due to the petitioner, the
deed of chattel mortgage stipulates payment of the sum of P1,700 in two equal installments;
3. Whereas the judgment makes no mention of damages, the deed of chattel mortgage obligates the
respondent to pay liquidated damages in the amount of P300 in case of default on his part; and
4. Whereas the judgment debt was unsecured, the chattel mortgage, which may be foreclosed
extrajudicially in case of default, secured the obligation.
On November 26, 1968, the petitioner moved for reconsideration of the appellate court's decision, which
motion the Court of Appeals denied in its resolution of December 7, 1968. Hence, the present petition
for certiorari to review the decision of the Court of Appeals, seeking reversal of the appellate court's
decision and affirmance of the order of the lower court.
Resolution of the controversy posed by the petition at bar hinges entirely on a determination of whether or
not the subsequent agreement of the parties as embodied in the deed of chattel mortgage impliedly
novated the judgment obligation in civil case 27116. The Court of Appeals, in arriving at the conclusion that
implied novation has taken place, took into account the four circumstances heretofore already adverted to
as indicative of the incompatibility between the judgment debt and the principal obligation under the deed of
chattel mortgage.
1. Anent the first circumstance, the petitioner argues that this does not constitute a circumstance in implying
novation of the judgment debt, stating that in the interim from the time of the rendition of the judgment in
civil case 27116 to the time of the execution of the deed of chattel mortgage the respondent made partial
payments, necessarily resulting in the lesser sum stated in the deed of chattel mortgage. He adds that on
record appears the admission by both parties of the partial payments made before the execution of the
deed of chattel mortgage. The erroneous conclusion arrived at by the Court of Appeals, the petitioner
argues, creates the wrong impression that the execution of the deed of chattel mortgage provided the
consideration or the reason for the reduced judgment indebtedness.
Where the new obligation merely reiterates or ratifies the old obligation, although the former effects but
minor alterations or slight modifications with respect to the cause or object or conditions of he latter, such
changes do not effectuate any substantial incompatibility between the two obligations Only those essential
and principal changes introduced by the new obligation producing an alteration or modification of the
essence of the old obligation result in implied novation. In the case at bar, the mere reduction of the amount
due in no sense constitutes a sufficient indictum of incompatibility, especially in the light of (a) the
explanation by the petitioner that the reduced indebtedness was the result of the partial payments made by
the respondent before the execution of the chattel mortgage agreement and (b) the latter's admissions
bearing thereon.
At best, the deed of chattel mortgage simply specified exactly how much the respondent still owed the
petitioner by virtue of the judgment in civil case 27116. The parties apparently in their desire to avoid any
future confusion as to the amounts already paid and as to the sum still due, decoded to state with specificity
in the deed of chattel mortgage only the balance of the judgment debt properly collectible from the
respondent. All told, therefore, the first circumstance fails to satisfy the test of substantial and complete
incompatibility between the judgment debt an the pecuniary liability of the respondent under the chattel
mortgage agreement.

21

2. The petitioner also alleges that the third circumstance, considered by the Court of Appeals as indicative
of incompatibility, is directly contrary to the admissions of the respondent and is without any factual basis.
The appellate court pointed out that while the judgment made no mention of payment of damages, the deed
of chattel mortgage stipulated the payment of liquidated damages in the amount of P300 in case of default
on the part of the respondent.
However, the petitioner contends that the respondent himself in his brief filed with the Court of Appeals
admitted his obligation, under the deed of chattel mortgage, to pay the amount of P300 by way of attorney's
fees and not as liquidated damages. Similarly, the judgment makes mention of the payment of the sum of
P400 as attorney's fees and omits any reference to liquidated damages.
The discrepancy between the amount of P400 and tile sum of P300 fixed as attorney's fees in the judgment
and the deed of chattel mortgage, respectively, is explained by the petitioner, thus: the partial payments
made by the respondent before the execution of the chattel mortgage agreement were applied in
satisfaction of part of the judgment debt and of part of the attorney's fee fixed in the judgment, thereby
reducing both amounts.
At all events, in the absence of clear and convincing proof showing that the parties, in stipulating the
payment of P300 as attorney's fees in the deed of chattel mortgage, intended the same as an obligation for
the payment of liquidated damages in case of default on the part of the respondent, we find it difficult to
agree with the conclusion reached by the Court of Appeals.
3. As to the second and fourth circumstances relied upon by the Court of Appeals in holding that the
montage obligation superseded, through implied novation, the judgment debt, the petitioner points out that
the appellate court considered said circumstances in a way not in accordance with law or accepted
jurisprudence. The appellate court stated that while the judgment specified no mode for the payment of the
judgment debt, the deed of chattel mortgage provided for the payment of the amount fixed therein in two
equal installments.
On this point, we see no substantial incompatibility between the mortgage obligation and the judgment
liability of the respondent sufficient to justify a conclusion of implied novation. The stipulation for the
payment of the obligation under the terms of the deed of chattel mortgage serves only to provide an
express and specific method for its extinguishment payment in two equal installments. The chattel
mortgage simply gave the respondent a method and more time to enable him to fully satisfy the judgment
1
indebtedness. The chattel mortgage agreement in no manner introduced any substantial modification or
alteration of the judgment. Instead of extinguishing the obligation of the respondent arising from the
judgment, the deed of chattel mortgage expressly ratified and confirmed the existence of the same,
amplifying only the mode and period for compliance by the respondent.
The Court of Appeals also considered the terms of the deed of chattel mortgage incompatible with the
judgment because the chattel mortgage secured the obligation under the deed, whereas the obligation
under the judgment was unsecured. The petitioner argues that the deed of chattel agreement clearly shows
that the parties agreed upon the chattel mortgage solely to secure, not the payment of the reduced amount
as fixed in the aforesaid deed, but the payment of the judgment obligation and other incidental expenses in
civil case 27116.
The unmistakable terms of the deed of chattel mortgage reveal that the parties constituted the chattel
mortgage purposely to secure the satisfaction of the then existing liability of the respondent arising from the
judgment against him in civil case 27116. As a security for the payment of the judgment obligation, the
chattel mortgage agreement effectuated no substantial alteration in the liability of the respondent.
The defense of implied novation requires clear and convincing proof of complete incompatibility between
2
the two obligations. The law requires no specific form for an effective novation by implication. The test is
whether the two obligations can stand together. If they cannot, incompatibility arises, and the second
obligation novates the first. If they can stand together, no incompatibility results and novation does not take
place.
We do not see any substantial incompatibility between the two obligations as to warrant a finding of an
implied novation. Nor do we find satisfactory proof showing that the parties, by explicit terms, intended the
full discharge of the respondent's liability under the judgment by the obligation assumed under the terms of
the deed of chattel mortgage so as to justify a finding of express novation.

22

ACCORDINGLY, the decision of the Court of Appeals of October 17, 1968 is set aside, and the order of the
Court of First Instance of Manila of January 25, 1962 is affirmed, at respondent Antonio Gabriel's cost.
Concepcion, C. J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and Makasiar, JJ., concur.
Villamor, J., abstains.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

G.R. No. L-26115 November 29, 1971

CARLOS SANDICO, SR., and TEOPISTO P. TIMBOL, petitioners,
vs.
THE HONORABLE MINERVA R. INOCENCIO PIGUING, Judge of the Court of First Instance of
Pampanga, and DESIDERIO PARAS, respondents.
CASTRO, J.:
On April 16, 1960 the spouses Carlos Sandico and Enrica Timbol, and Teopisto P. Timbol, administrator of
the estate of the late Sixta Paras, obtained a judgment in their favor against Desiderio Paras (hereinafter
referred to as the respondent) in civil case 1554, an action for easement and damages in the Court of First
Instance of Pampanga. On appeal, the Court of Appeals affirmed and modified the judgment, as follows:
IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is
condemned to recognize the easement which is held binding as to him; he is sentenced
to pay plaintiffs the sums of P5,000.00 actual, and P500.00 exemplary damages, and
P500.00 attorney's fees; plus costs in both instances.
Thereafter, upon remand to the court a quo of civil case 1554, the Sandicos and Timbol (hereinafter
referred to as the petitioners) moved for the issuance of a writ of execution to enforce the appellate court's
judgment which had acquired finality. Acting upon the motion, the court a quo issued a writ of execution on
July 22, 1964. This writ the provincial sheriff served upon the respondent on August 22, 1964.
Meanwhile the petitioners and the respondent reached a settlement, finally agreeing to the reduction of the
money judgment from P6,000 to P4,000. Thus, the respondent, on August 5, 1964, paid the petitioners the
sum of P3,000; he made another payment in the amount of P1,000 as evidenced by a receipt issued by the
petitioners' counsel. This receipt is hereunder reproduced in full:
P1,000.00
RECEIVED from Mr. Desiderio Paras the sum of ONE THOUSAND PESOS (P1,000.00),
Philippine Currency, in full satisfaction of the money judgment rendered against him in
Civil Case No. 1554 of the Court of First Instance of Pampanga, it being understood that

23

the portion of the final judgment rendered in the said case ordering him to reconstruct the
irrigation canal in question shall be complied with by him immediately.
City of Angeles, August 31, 1964.
(SGD.) DALMACIO P. TIMBOL
Counsel for Plaintiffs
in Civil Case No. 1554
I AGREE:
(SGD.) DESIDERIO PARAS
Subsequently, the petitioners sent the respondent a letter dated November 5, 1964 demanding compliance
by the latter with the portion of the judgment in civil case 1554 relative to the reconstruction and reopening
of the irrigation canal.
On February 12, 1965 the provincial sheriff returned the writ of execution issued on July 22, 1964
unsatisfied.
Upon failure and refusal of the respondent to rebuild and reopen the irrigation canal, the petitioners, on
March 3, 1965, filed with the court a quo, with Judge Minerva R. Inocencio Piguing (hereinafter referred to
as the respondent judge) presiding, a motion to declare the said private respondent in contempt of court,
pursuant to provisions of section 9, Rule 39 of the Rules of Court. Opposing the motion, the respondent
alleged recognition by him of the existence of the easement and compliance with the appellate court's
judgment, stating that he had dug a canal in its former place, measuring about one and-a-half feet deep, for
the petitioners' use.
On September 8, 1965 the respondent judge issued an order denying the petitioners' motion to declare the
respondents in contempt of court, ruling that.
... it appears from the dispositive part of the decision that the defendant was only ordered
to recognize the easement which is held binding as to him and to pay the plaintiffs the
sums P5,000.00 of actual, and P500.00 exemplary damages.
Apparently, it is clear from the dispositive part of the decision that there is nothing to show
that the defendant was ordered to reconstruct the canal.
On September 16, 1965 the petitioners moved for issuance of an alias writ of execution to enforce the
judgement of the Court of Appeals. This motion the respondent judge granted in an order dated September
25, 1965. On November 3, 1965. the respondent moved to set aside the said alias writ, alleging full
satisfaction of the judgment per agreement of the parties when the petitioner received the sum of P4,000 in
August, 1964 as evidenced by the receipt dated August 31, 1964.
The respondent judge then issued an order dated November 11, 1965 directing the provincial sheriff to
suspend the execution of the alias writ until further orders. On February 3, 1966 the respondent judge
issued an order calling, and directing the quashal of the alias writ of execution. The respondent judge stated
in her order that the agreement of the parties "novated" the money judgment provided for in the decision of
the Court of Appeals, ruling that the said decision.
... which is sought now to be executed by this Court, has already been fully satisfied as to
the money judgment and nothing more is left to be executed from the aforesaid Decision
as it does not allege (aside from money judgment) any other condition except for the
defendants to recognize the easement therein.
With their subsequent motion for reconsideration denied by the respondent judge, the petitioners, on May
2
27, 1966, filed with this Court the present petition for certiorari seeking to set aside (1) the order of the
respondent judge dated September 8, 1965 denying their motion to declare the respondent in contempt of
court in civil case 1554, and (2) the orders of the respondent judge dated February 3, 1966 and March 30,
1966 granting the respondent's motion to set aside the alias writ of execution issued in the same civil case,
on the ground that the respondent judge acted in excess of jurisdiction or with grave abuse of discretion.
Here tendered for resolution are the following issues:

24

(1) Whether the respondent judge correctly constructed the judgment of the Court of Appeals as not
requiring the respondent to reconstruct and reopen the irrigation canal, and consequently, whether the said
respondent judge acted in excess of jurisdiction or with grave abuse of discretion in denying the petitioners'
motion to declare the respondent in contempt of court for failing and refusing to comply with the appellate
court's judgment; and
(2) Whether the payment by the respondent to the petioners of the amount of P4,000 extinguished the
money judgment, and, consequently, whether the respondent judge acted in excess of jurisdiction or with
grave abuse of discretion in ordering the recall and quashal of the alias writ of execution.
1. Anent the first issue, the petitioners argue that although the dispositive portion of the appellate court's
judgment omitted any directive to the respondent to reconstruct and reopen the irrigation canal, the Court of
Appeals' order requiring recognition of the easement on the part of the said respondent suffices to make
him aware of his obligation under the judgment. The only way of recognizing the easement, the petitioners
continue, consists in performing positive act the reconstruction and restoration of the irrigation canal to
its former condition. Moreover, to understand the full intendment of the dispositive portion of the judgment
directing the respondent "to recognize the easement" necessitates reference to a statement in the decision
of the Court of Appeals that reads:
... the result of this must be to justify the conclusion prayed for by the plaintiffs that the
easement should be held to be existing and binding upon defendant and he should be
held to have acted without authority in closing the canal which should be ordered
reopened.
On the other hand, the respondent alleges that there is no ambiguity in the phraseology of the portion of the
Court of Appeals' judgment condemning to recognize the easement. Said decision requires him only to
"recognize" the easement and in compliance therewith, he gives the petitioners permission to reconstruct
and reopen the irrigation canal themselves. Neither the decision a quo nor that of the appellate court orders
him to reconstruct and reopen the irrigation canal.
The agreement reached by the petitioners and the respondent in August, 1964 relative to the judgment of
the appellate court which had acquired finality and the interpretation by the parties themselves of the said
judgment, specifically its dispositive portion, as embodied in the receipt dated August 31, 1964, constitute
the considerations of prime importance in the resolution of the first question. No doubt exists that the parties
entered into the agreement, fully aware of the judgment of the appellate court ordering the respondent to
comply with two obligations, to wit, payment of a sum of money and recognition of the easement. The
receipt evidencing the agreement, aside from providing for the reduction of the money judgment, provides
for the reconstruction of the irrigation canal. Such constitutes the interpretation accorded by the parties to
that part of the dispositive portion of the appellate court's judgment condemning the respondent to
recognize the easement. This stipulation one wherein the respondent clearly recognizes his obligation
"to reconstruct the irrigation canal" embodied in precise and clear terms in the receipt binds the said
respondent, a signatory to the said receipt, and requires from him full compliance. We thus fail to perceive
any reason to sustain the contention of the respondent that he has no obligation at all to reconstruct and
reopen the irrigation canal, a position utterly inconsistent with his agreement with the petitioners as
embodied in the receipt dated August 31, 1964.
The record, however, shows that the respondent exerted efforts to reconstruct the portion of the irrigation
canal running through his land by digging a canal about one meter wide and about one-and-a-half feet
deep. This partial reconstruction of the irrigation canal the petitioners admit. Still, the petitioners demand
the reconstruction of the irrigation canal to its former condition measuring four meters wide, five feet
deep, and one-hundred and twenty-eight meters long contending that the rebuilt canal serves no useful
purpose because the water passing through it overflows, which overflow ultimately causes the destruction
of the canal itself. Nonetheless, we believe that need to give full force and effect to the existence of the
easement demands that the respondent reconstruct the irrigation canal to its condition before he closed
and destroyed the same. After all, the respondent himself in his answer dated June 16, 1959 filed with the
court a quo admitted the original dimensions of the irrigation canal as four meters wide and one-hundred
and twenty-eight meters long. The respondent's attempt, to rebuild the irrigation canal, partially and not in
conformity with the dimensions of the original one, does not constitute satisfactory and substantial
compliance with his obligation to recognize the easement per the appellate court's judgment and to
reconstruct the irrigation canal pursuant to his agreement with the petitioners in August, 1964.
Due to the respondent's failure and refusal to reconstruct and reopen the irrigation canal, the petitioners

25

sought to declare him in contempt of court, under the provisions of section 9 of Rule 39 of the Rules of
Court. The respondent judge, however, believing that the appellate court's judgement required the
respondent merely to recognize the equipment without doing any positive act of reconstruction and
reopening of the irrigation canal, dismissed the petition motion to declare the respondent in contempt of
court. In doing so, the petitioners allege, the respondent judge acted in excess of jurisdiction or with grave
abuse of discretion. The petitioners thus ask us now to annul the order of the respondent judge denying
their motion to declared the respondent in contempt of court or, by way of native, to declare the respondent
in contempt of court and to punish him accordingly.
The petitioners predicate their stand mainly upon the provisions of section 9 of Rule 39 of the Rules of
Court. Said section reads:
Sec. 9. Writ of execution of special judgment. When judgment requires the
performance of any other act than the payment of money, or the sale or delivery of real or
personal property, a certified copy of the judgment shall be attached the writ of execution
and shall be served by the officer upon the party against whom the same is rendered, or
upon any of person required thereby, or by law, to obey the same, and party or person
may be punished forcontempt if he disobeys such judgment.
Section 9 applies to specific acts other than those cover by section 10 of the same rule. Section 10
pertinently provides:
See. 10. Judgment for an acts; vesting title. If a judgment directs a party to execute a
conveyance of land, or to deliver deeds or other documents, or to perform any other
specific act, and the party fails to comply within the time specified, the court may direct
the act to be done at the cost of disobedient party by some other person appointed by the
court and the act when so done shall have like effect as if done by the party. ...
Section 9 refers to a judgment directing the performance of a specific act which the said judgment requires
the party or person to personally do because of his personal qualifications and circumstances. Section 10
refers to a judgment requiring the execution of a conveyance of land or the delivery of deeds or other
documents or the performance of any other specific act susceptible of execution by some other person or in
some other way provided by law with the same effect. Under section 10, the court may designate some
other person to do the act ordained to be done by the judgment, the reasonable cost of its performance
chargeable to the disobedient party. The act, when so done, shall have the same effect as if performed by
the party himself. In such an instance, the disobedient party incurs no liability for contempt. Under section 9,
the court may resort to proceedings for contempt in order to enforce obedience to a judgment which
requires the personal performance of a specific act other than the payment of money, or the sale or delivery
of real or personal property.
An examination of the case at bar makes it apparent that the same falls within the contemplation of section
10, and not of section 9 as the petitioners contend. The reconstruction and reopening of the irrigation canal
may be done by same other person designated by the court, at the cost of the respondent. In fact, the
respondent in his attempt to rebuild the irrigation canal, contracted the services of one Gerardo Salenga.
Accordingly, in conformity with the appellate court's judgment as further mutually interpreted by the parties
themselves, the court a quo, because of the failure and refusal of the respondent to restore the irrigation
canal to its former condition and to reopen it, should have appointed some other person to do the
reconstruction, charging the expenses therefor to the said respondent.
2. As to the second question, which relates to the money judgment, the petitioners vehemently insist on
their right to recover an additional sum of P2,000 the alleged unsatisfied portion of the appellate court's
judgement requiring the respondent to pay to the petitioners the total amount of P6,000 corresponding to
damages and attorney's fees. The petitioners allege that their agreement with the respondent in August,
1964, reducing the amount due from the respondent, constitutes neither waiver of their claim for the sum of
P2,000 nor novation of the money judgment provided for in the Court of Appeals' decision. They state that
their agreement with the respondent reduced the amount of the money judgment, subject to the condition
that the latter reconstruct and reopen the irrigation canal immediately. This, they argue, does not constitute
alteration of the appellate court's judgment.
For his part, the respondent contends that his payment of the sum of P4,000, received and acknowledged
by the petitioners through their counsel as "in full satisfaction of the money judgment" in civil case 1554,
extinguished his pecuniary liability. Thus, when the petitioners, notwithstanding the admitted payment of the
judgment debt in the lesser amount of P4,000, still sought to enforce the money judgment for the full

26

amount of P6,000 through an aliaswrit of execution, the court a quo, in recalling and quashing the alias writ
previously issued, acted correctly andwithin its authority.
Parenthetically, the petitioner's application for the issuance of the alias writ of execution dated September
16, 1965, the alias writ of execution dated September 29, 1965, and the levy on execution and the notice of
sheriff's sale, both dated October 21, 1965, all refer to the amount of P6,000 and make no mention
whatsoever of the true status of the judgement debt. On this point the respondent charges the petitioners
with concealing from the courta quo the true amount, if any, still due from him. And in effect, he alleges, the
petitioners apparently seek the payment of the judgment debt twice. The petitioners, however, emphasize
that they demand payment of only the balance of P2,000. To rebut the respondents charge of concealment,
they state that they informed the court a quothat the respondent already paid them the sum of P4,000.
Furthermore, they allege that another lawyer, a former associate of their counsel, prepared their motion for
the issuance of the alias writ of execution, received the aliaswrit and delivered the same to the sheriff.
Impliedly, therefore, they attribute the inconsistency regarding the amount still allegedly due from the
respondent to the former associate of their counsel.
Reverting to the second question, the appellate court's judgment obliges the respondent to do two things:
(1) to recognize the easement, and (2) to pay the petitioners the sums of P5,000 actual and P500
exemplary damages and P500 attorney's fees, or a total of P6,000. The full satisfaction of the said
judgment requires specific performance and payment of a sum of money by the respondent.
We adjudge the respondent's judgment debt as having been fully satisfied. We see no valid objection to the
petitioners and the respondent entering into an agreement regarding the monetary obligation of the latter
under the judgment of the Court of Appeals, reducing the same from P6,000 to P4,000. The payment by the
respondent of the lesser amount of P4,000, accepted by the petitioners without any protest or objection and
acknowledged by them as "in full satisfaction of the money judgment" in civil case 1554, completely
extinguished the judgment debt and released the respondent from his pecuniary liability.
Both the petitioners and the respondent take exception to the respondent judge's ruling that their agreement
of August, 1964 to reduce the judgment debt, as evidenced by the receipt hereinbefore adverted to,
"novated" the money judgment rendered by the appellate court.
Novation results in two stipulations one to extinguish an existing obligation, the other to substitute a new
one in its place. Fundamental it is that novation effects a substitution or modification of an obligation by
another or an extinguishment of one obligation in the creation of another. In the case at hand, we fail to see
what new or modified obligation arose out of the payment by the respondent of the reduced amount of
P4,000 and substitute the monetary liability for P6,000 of the said respondent under the appellate court's
judgment. Additionally, to sustain novation necessitates that the same be so declared in unequivocal terms
clearly and unmistakably shown by the express agreement of the parties or by acts of equivalent import
or that there is complete and substantial incompatibility between the two obligations.
Neither do we appreciate the petitioners' stand that, according to their agreement with the respondent, their
assent to the reduction of the money judgment was subject to the condition that the respondent reconstruct
and reopen the portion of the irrigation canal passing through his land immediately. The petitioners even
state that the receipt of August 31, 1964 embodies this condition.
The terms of the receipt dated August 31, 1964, we find clear and definite. The receipt neither expressly nor
impliedly declares that the reduction of the money judgment was conditioned on the respondent's
reconstruction and reopening of the irrigation canal. The receipt merely embodies the recognition by the
respondent of his obligation to reconstruct the irrigation canal. And the receipt simply requires the
respondent to comply with such obligation "immediately." The obligation of the respondent remains as a
portion of the Court of Appeals' judgment. In fact, the petitioners themselves, in their letter dated November
5, 1964, sent to the respondent, demanding that the latter reconstruct the irrigation canal immediately,
referred to the same not as a condition but as "the portion of the judgment" in civil case 1594.
Consequently, the respondent judge, when she granted the motion of the respondent to set aside the alias
writ of execution and issued the order dated February 3, 1966 recalling and quashing the said alias writ,
acted correctly. Courts have jurisdiction to entertain motions to quash previously issued writs of execution
because courts have the inherent power, for the advancement of justice, to correct the errors of their
ministerial officers and to control their own processes. However, this power, well circumscribed, to quash
the writ, may be exercised only in certain situations, as when it appears that (a) the writ has been
improvidently issued, or (b) the writ is defective in substance, or (c) the writ has been issued against the

27

wrong party, or (d) the judgment debt has been paid or otherwise satisfied, or (e) the writ has been issued
without authority, or (f) there has been a change in the situation of the parties which renders such execution
inequitable, or (g) the controversy has never been submitted to the judgment of the court, and, therefore, no
6
judgment at all has ever been rendered thereon. In the instant case, the payment of the judgment debt by
the respondent, although in a reduced amount but accepted by the petitioners as "in full satisfaction of the
money judgment," warrants the quashal of the alias writ.
ACCORDINGLY, judgment is hereby rendered, (1) declaring that the respondent judge did not act in excess
of jurisdiction or with grave abuse of discretion in issuing the order dated February 3, 1966 (granting the
respondent's motion to set aside the alias writ of execution, and recalling and guashing the said alias writ)
and the order dated March 30, 1966 (denying the petitioners' motion for reconsideration, of the order dated
February 3, 1966) ; and (2) remanding the case to the court a quo with instructions that the respondent
court (a) conduct an ocular inspection of the irrigation canal passing through the respondent's land to
determine whether or not the said canal has been rebuilt in accordance with its original dimensions; (b) in
the event that the said canal fails to meet the measurements of the original one, order the respondent to
reconstruct the same to its former condition; and (3) in the event of the respondent's further refusal or
failure to do so, appoint some other person to reconstruct the canal in accordance with its original
dimensions, at the cost of the said respondent, pursuant to section 10 of Rule 39 of the Rules of Court.
Without pronouncement as to costs.
Concepcion, C.J., Makalintal, Zaldivar, Fernando, Barredo, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs in the result.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. Nos. L-62845-46 November 25, 1983
NATIONAL POWER CORPORATION, petitioner,
vs.
JUDGE ABELARDO M. DAYRIT, Court of First Instance of Manila, Branch 39, and DANIEL R. ROXAS,
doing business as United Veterans Security Agency and Foreign Boats Watchmen, respondents.
ABAD SANTOS, J.:
This is a petition to set aside the Order, dated September 22, 1982, of the respondent judge. The prayer is
premised on the allegation that the questioned Order was issued with grave abuse of discretion.
In Civil Case No. 133528 of the defunct Court of First Instance of Manila, DANIEL E. ROXAS, doing
business under the name and style of United Veterans Security Agency and Foreign Boats Watchmen,
sued the NATIONAL POWER CORPORATION (NPC) and two of its officers in Iligan City. The purpose of
the suit was to compel the NPC to restore the contract of Roxas for security services which the former had
terminated.
After several incidents, the litigants entered into a Compromise Agreement on October 14, 1981, and they
asked the Court to approve it. Accordingly, a Decision was rendered on October 30, 1981, which reads as
follows: t.hqw
In order to abbreviate the proceedings in this case, the parties, instead of going into trial,

28

submitted a compromise agreement, as follows:

The parties, DANIEL E. ROXAS, etc. and NATIONAL POWER CORPORATION,
ET AL., represented by its President Mr. Gabriel Y. Itchon with due and proper
authority under NP Board Resolution No. 81-224, assisted by their respective
counsel, to this Honorable Court respectfully submit the following compromise
agreement:
1. The defendant National Power Corporation shall pay to plaintiff the sum of
P7,277.45, representing the amount due to plaintiff for the services of one of
plaintiff's supervisors;
2. The defendant shall pay plaintiff the value of the line materials which were
stolen but recovered, by plaintiff's agency which value is to be determined after a
joint inventory by the representatives of both parties;
3. The parties shall continue with the contract of security services under the
same terms and conditions as the previous contract effective upon the signing
thereof;
4. The parties waive all their respective claims and counterclaims in favor of
each other;
5. The parties agree to faithfully comply with the foregoing agreement.
PRAYER
WHEREFORE, it is respectfully prayed that the Hon. Court approve the following compromise
agreement.'
Examining the foregoing agreement, the Court finds that the same is in accordance with law and
not against morals and public policy.
CONFORMABLY, the Court hereby renders judgment in accordance with the terms and conditions
thereof, enjoining the parties to strictly comply with the terms and conditions of the compromise
agreement, without pronouncement as to cost. (Rollo, pp. 33-34.)
The judgment was not implemented for reasons which have no relevance here.
On May 14, 1982, the NPC executed another contract for security services with Josette L. Roxas whose
relationship to Daniel is not shown. At any rate Daniel has owned the contract. The NPC refused to
implement the new contract for which reason Daniel filed a Motion for Execution in the aforesaid civil case
which had been re-numbered R-82-10787. The Motion reads: t.hqw
PLAINTIFF, by counsel, respectfully shows:
1. On October 30, 1981, this Honorable Court rendered its decision based on compromise
agreement submitted by the parties, under which it was provided, among others, that
3. The parties shall continue with the contract of security services under the
same terms and conditions as the previous contract effective upon the signing
thereof;
2. To date, after more than about eight (8) months since the decision of this Honorable Court,
defendant National Power Corporation, through bad faith by reason of excuses made one after
another, has yet to comply with the aforesaid terms of the decision. It has not reinstated the
contract with the plaintiff in gross violation of the terms of the said compromise agreement which
this Honorable Court approved, 'enjoining the parties to strictly comply with the terms and
conditions of the compromise agreement,
3. Hence, plaintiff is compelled to seek the assistance of this Honorable Court for the execution of
its decision.

29

PRAYER
WHEREFORE, it is respectfully prayed that this Honorable Court order the issuance of the writ of
execution for the enforcement of the aforesaid portion of its decision. (Rollo, pp. 35 -36.)
Acting on the Motion, the respondent judge issued the following Order: t.hqw
Acting on the motion for execution dated July 14, 1982, visibly over the objection and/or opposition
to the motion for execution dated July 19, 1982, the Court, considering that the decision of October
30, 1981 was based on a Compromise Agreement entered into by and between the parties which
decidedly, become final and executory, is inclined to grant said action.
CONFORMABLY, let the corresponding writ of execution be issued to be served by the Deputy
Sheriff assigned to this branch. (Rollo, p. 54.)
The NPC assails the Order on the ground that it directs execution of a contract which had been novated by
that of May 14, 1982. Upon the other hand, Roxas claims that said contract was executed precisely to
implement the compromise agreement for which reason there was no novation.
We sustain the private respondent. Article I of the May 14, 1982, agreement supports his contention. Said
article reads: t.hqw
ARTICLE I
DOCUMENTS COMPRISING THE CONTRACT
The letter proposal dated September 5, 1981; CORPORATION'S counter- proposal dated
September 11, 1981; Board Resolution No. 81-244 dated September 28, 1981; the Compromise
Agreement and Court Decision dated October 30, 1981 in Civil Case No. 133528 CFI-Manila; other
subsequent letters and the performance bond of AGENCY to be flied in favor of CORPORATION
in the manner hereinafter provided, are hereby expressly made integral parts of this contract by
reference. (Rollo, pp. 59-60.)
It is elementary that novation is never presumed; it must be explicitly stated or there must be manifest
incompatibility between the old and the new obligations in every aspect. Thus the Civil Code provides:
Art. 1292. In order that an obligation may be extinguished by another which substitutes the same,
it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations
be on every point incompatible with each other.
In the case at bar there is nothing in the May 14, 1982, agreement which supports the petitioner's
contention. There is neither explicit novation nor incompatibility on every point between the "old" and the
"new" agreements.
WHEREFORE, the petition is denied for lack of merit with costs against the petitioner.
SO ORDERED.
Fernando, C.J., Teehankee, Makasiar, Concepcion Jr., Guerrero, De Castro, Melencio-Herrera, Plana,
Escolin, Relova and Gutierrez, Jr., JJ., concur.
Aquino, J., took no part.

30

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-41117 December 29, 1986
INTEGRATED CONSTRUCTION SERVICES, INC., and ENGINEERING CONSTRUCTION,
INC., petitioners,
vs.
THE HONORABLE LORENZO RELOVA, as Judge of the Court of First Instance of Manila, and
METROPOLITAN WATERWORKS & SEWERAGE SYSTEM, respondents.
PARAS, J.:
This is a petition for mandamus as a special civil action and/or, in the alternative, an appeal from orders of
the Court of First Instance of Manila under Republic Act 5440 in Civil Case No. 80390 entitled "Integrated
Construction Services, Inc. and Engineering Construction, Inc., plaintiffs, versus National Waterworks and
Sewerage Authority (now Metropolitan Waterworks & Sewerage System), defendant." Petitioners complied
with the requisites for both remedies.
The facts are not in dispute:
Petitioners on July 17, 1970 sued the respondent Metropolitan Waterworks and Sewerage System
(MWSS), formerly the National Waterworks and Sewerage Authority (NAWASA), in the Court of First
Instance of Manila for breach of contract, docketed as Civil Case No. 80390 in that Court. Meanwhile, the
parties submitted the case to arbitration.
The Arbitration Board, after extensive hearings, rendered its decision-award on August 11, 1972.
Respondent Judge confirmed the Award on September 9, 1972 and the same has long since become final
and executory.
The decision-award ordered MWSS to pay petitioners P15,518,383.61-less P2,329,433.41, to be set aside
as a trust fund to pay creditors of the joint venture in connection with the projector a net award of
P13,188,950.20 with interest thereon from the filing of the complaint until fully paid.
Subsequently, however, petitioners agreed to give MWSS some discounts in consideration of an early
payment of the award. Thus, on September 21, 1972, MWSS adopted Board Resolution No. 132-72,
embodying the terms and conditions of their agreement. On October 2, 1972, MWSS sent a letter agreement to petitioners, quoting Board Resolution No. 13272, granting MWSS some discounts from the
amount payable under the decision award (consisting of certain reductions in interests, in the net principal
award and in the trust fund), provided that MWSS would pay the judgment, less the said discounts, within
fifteen days therefrom or up to October 17, 1972.

31

Upon MWSS' request, the petitioners signed their "Conforme" to the said letter-agreement, and extended
the period to pay the judgment less the discounts aforesaid to October 31, 1972. MWSS, however, paid
only on December 22, 1972, the amount stated in the decision but less the reductions provided for in the
October 2, 1972 letter-agreement.
Three years thereafter, or on June, 1975, after the last balance of the trust fund had been released and
used to satisfy creditors' claims, the petitioners filed a motion for execution in said civil case against MWSS
for the balance due under the decision-award. Respondent MWSS opposed execution setting forth the
defenses of payment and estoppel. (p. 174, Rollo)
On July 10, 1975, respondent judge denied the motion for execution on the ground that the parties had
novated the award by their subsequent letter-agreement. Petitioners moved for reconsideration but
respondent judge, likewise, denied the same in his Order dated July 24, 1975.
Hence, this Petition for Mandamus, alleging that respondent judge unlawfully refused to comply with his
mandatory duty-to order the execution of the unsatisfied portion of the final and executory award.
In a Resolution dated October 17, 1975, the Supreme Court dismissed the Petition for lack of merit. (p. 107,
Rollo )and denied petitioners' Motion for Reconsideration of the same. (p. 131, Rollo)
At the hearing on petitioners' Second Motion for Reconsideration, however, respondent MWSS asserted
new matters, (p. 186, Rollo) arguing that: the delay in effecting payment was caused by an unforeseen
circumstance the declaration of martial law, thus, placing MWSS under the management of the Secretary of
National Defense, which impelled MWSS to refer the matter of payment to the Auditor General and/or the
Secretary of National Defense; and that the 15-day period was merely intended to pressure MWSS officials
to process the voucher. Petitioners, however, vehemently deny these matters which are not supported by
the records.
We agree with the petitioners.
While the tenor of the subsequent letter-agreement in a sense novates the judgment award there being a
shortening of the period within which to pay (Kabangkalan Sugar Co. vs. Pacheco, 55 Phil. 555), the
suspensive and conditional nature of the said agreement (making the novation conditional) is expressly
acknowledged and stipulated in the 14th whereas clause of MWSS' Resolution No. 132-72, (p. 23, Rollo)
which states:
WHEREAS, all the foregoing benefits and advantages secured by the MWSS out of said
conferences were accepted by the Joint Venture provided that the remaining net amount payable
to the Joint Venture will be paid by the MWSS within fifteen (15) days after the official release of
this resolution and a written CONFORME to be signed by the Joint Venture; (Emphasis supplied)
MWSS' failure to pay within the stipulated period removed the very cause and reason for the agreement,
rendering some ineffective. Petitioners, therefore, were remitted to their original rights under the judgment
award.
The placing of MWSS under the control and management of the Secretary of National Defense thru Letter
of Instruction No. 2, dated September 22, 1972 was not an unforeseen supervening factor because when
MWSS forwarded the letter-agreement to the petitioners on October 2, 1972, the MWSS was already aware
of LOI No. 2.
MWSS' contention that the stipulated period was intended to pressure MWSS officials to process the
voucher is untenable. As aforestated, it is apparent from the terms of the agreement that the 15 -day period
was intended to be a suspensive condition. MWSS, admittedly, was aware of this, as shown by the internal
memorandum of a responsible MWSS official, stating that necessary steps should be taken to effect
payment within 15 days, for otherwise, MWSS would forego the advantages of the discount. " (p. 426,
Rollo)
As to whether or not petitioners are now in estoppel to question the subsequent agreement, suffice it to
state that petitioners never acknowledged full payment; on the contrary, petitioners refused MWSS' request
for a conformeor quitclaim. (p. 125, Rollo)
Accordingly, the award is still subject to execution by mere motion, which may be availed of as a matter of

32

right any time within (5) years from entry of final judgment in accordance with Section 5, Rule 39 of the
Rules of Court.
WHEREFORE, We hereby set aside the assailed orders, and issue the writ of mandamus directing the
present Regional Trial Judge of the Branch that handled this case originally to grant the writ of execution for
the balance due under the award.
SO ORDERED.
Teehankee, C.J., Feria, Yap, Fernan, Narvasa, Melencio-Herrera, Alampay, Gutierrez, Jr., Cruz and
Feliciano, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-47369 June 30, 1987
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners,
vs.
R & B SURETY AND INSURANCE COMPANY, INC., respondent.
FELICIANO, J.:
This case was certified to us by the Court of Appeals in its resolution dated 11 November 1977 as one
involving only questions of law and, therefore, falling within the exclusive appellate jurisdiction of this Court
under Section 17, Republic Act 296, as amended.
In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) applied for and was granted an increase
in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the Philippine National
Bank (PNB). To secure PNB's approval, PAGRICO had to give a good and sufficient bond in the amount of
P400,000.00, representing the increment in its line of credit, to secure its faithful compliance with the terms
and conditions under which its line of credit was increased. In compliance with this requirement, PAGRICO
submitted Surety Bond No. 4765, issued by the respondent R & B Surety and Insurance Co., Inc. (R & B
Surety") in the specified amount in favor of the PNB. Under the terms of the Surety Bond, PAGRICO and R
& B Surety bound themselves jointly and severally to comply with the "terms and conditions of the advance
line [of credit] established by the [PNB]." PNB had the right under the Surety Bond to proceed directly
against R & B Surety "without the necessity of first exhausting the assets" of the principal obligor,
PAGRICO. The Surety Bond also provided that R & B Surety's liability was not to be limited to the principal
sum of P400,000.00, but would also include "accrued interest" on the said amount "plus all expenses,
charges or other legal costs incident to collection of the obligation [of R & B Surety]" under the Surety Bond.
In consideration of R & B Surety's issuance of the Surety Bond, two Identical indemnity agreements were
entered into with R & B Surety: (a) one agreement dated 23 December 1963 was executed by the Catholic
Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, the latter signed not only as President of
CCM but also in his personal and individual capacity; and (b) another agreement dated 24 December 1963
was executed by PAGRICO, Pacific Copra Export Inc. (PACOCO), Jose K. Villanueva and Liu Tua Ben Mr.
Villanueva signed both as Manager of PAGRICO and in his personal and individual capacity; Mr. Liu signed
both as President of PACOCO and in his individual and personal capacity.

33

Under both indemnity agreements, the indemnitors bound themselves jointly and severally to R & B Surety
to pay an annual premium of P5,103.05 and "for the faithful compliance of the terms and conditions set
forth in said SURETY BOND for a period beginning ... until the same is CANCELLED and/or
DISCHARGED." The Indemnity Agreements further provided:
(b) INDEMNITY: TO indemnify the SURETY COMPANY for any damage, prejudice,
loss, costs, payments, advances and expenses of whatever kind and nature, including [of]
attorney's fees, which the CORPORATION may, at any time, become liable for, sustain or
incur as consequence of having executed the above mentioned Bond, its renewals,
extensions or substitutions and said attorney's fees [shall] not be less than twenty [20%]
per cent of the total amount claimed by the CORPORATION in each action, the same to
be due, demandable and payable, irrespective of whether the case is settled judicially or
extrajudicially and whether the amount has been actually paid or not;
(c) MATURITY OF OUR OBLIGATIONS AS CONTRACTED HEREWITH: The said
indemnities will be paid to the CORPORATION as soon as demand is received from the
Creditor or upon receipt of Court order or as soon as it becomes liable to make payment
of any sum under the terms of the above-mentioned Bond, its renewals, extensions,
modifications or substitutions, whether the said sum or sums or part thereof, have been
actually paid or not.
We authorize the SURETY COMPANY, to accept in any case and at its entire discretion,
from any of us, payments on account of the pending obligations, and to grant extension to
any of us, to liquidate said obligations, without necessity of previous knowledge of [or]
consent from the other obligors.
xxx xxx xxx
(e) INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY. Any payment or
disbursement made by the SURETY COMPANY on account of the above-mentioned
Bonds, its renewals, extensions or substitutions, either in the belief that the SURETY
COMPANY was obligate[d] to make such payment or in the belief that said payment was
necessary in order to avoid greater losses or obligations for which the SURETY
COMPANY might be liable by virtue of the terms of the above-mentioned Bond, its
renewals, extensions or substitutions, shall be final and will not be disputed by the
undersigned, who jointly and severally bind themselves to indemnify the SURETY
COMPANY of any and all such payments as stated in the preceding clauses.
xxx xxx xxx
When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment
from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety
made a series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed
vouchers and receipts.
R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K.
Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of its liability to
the PNB under the Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit
against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben in the Court of First Instance of
Manila, praying principally that judgment be rendered:
b. Ordering defendants to pay jointly and severally, unto the plaintiff, the sum of P20,412.20
representing the unpaid premiums for Surety Bond No. 4765 from 1965 up to 1968, and the
additional amount of P5,103.05 yearly until the Surety Bond No. 4765 is discharged, with interest
thereon at the rate of 12% per annum; [and]
c. Ordering the defendants to pay jointly and severally, unto the plaintiff the sum of P400,000.00
representing the total amount of the Surety Bond No. 4765 with interest thereon at the rate of 12%
per annum on the amount of P70,000.00 which had been paid to the Phil. National Bank already,
the interest to begin from the month of September, 1966;
xxx xxx xxx

34

Petitioner Joseph Cochingyan, Jr. in his answer maintained that the Indemnity Agreement he executed in
favor of R & B Surety: (i) did not express the true intent of the parties thereto in that he had been asked by
R & B Surety to execute the Indemnity Agreement merely in order to make it appear that R & B Surety had
complied with the requirements of the PNB that credit lines be secured; (ii) was executed so that R & B
Surety could show that it was complying with the regulations of the Insurance Commission concerning
bonding companies; (iii) that R & B Surety had assured him that the execution of the agreement was a mere
formality and that he was to be considered a stranger to the transaction between the PNB and R & B
Surety; and (iv) that R & B Surety was estopped from enforcing the Indemnity Agreement as against him.
Petitioner Jose K. Villanueva claimed in his answer that. (i) he had executed the Indemnity Agreement in
favor of R & B Surety only "for accommodation purposes" and that it did not express their true intention; (ii)
that the Principal Obligation of PAGRICO to the PNB secured by the Surety Bond had already been
assumed by CCM by virtue of a Trust Agreement entered into with the PNB, where CCM represented by
Joseph Cochingyan, Jr. undertook to pay the Principal Obligation of PAGRICO to the PNB; (iii) that his
obligation under the Indemnity Agreement was thereby extinguished by novation arising from the change of
debtor under the Principal Obligation; and (iv) that the filing of the complaint was premature, considering
that R & B Surety filed the case against him as indemnitor although the PNB had not yet proceeded against
R & B Surety to enforce the latter's liability under the Surety Bond.
Petitioner Cochingyan, however, did not present any evidence at all to support his asserted defenses.
Petitioner Villanueva did not submit any evidence either on his "accommodation" defense. The trial court
was therefore constrained to decide the case on the basis alone of the terms of the Trust Agreement and
other documents submitted in evidence.
In due time, the Court of First Instance of Manila, Branch 24 1 rendered a decision in favor of R & B Surety,
the dispositive portion of which reads as follows;
Premises considered, judgment is hereby rendered: (a) ordering the defendants Joseph
Cochingyan, Jr. and Jose K. Villanueva to pay, jointly and severally, unto the plaintiff the sum of
400,000,00, representing the total amount of their liability on Surety Bond No. 4765, and interest at
the rate of 6% per annum on the following amounts:
On P14,000.00 from September 27, 1966;
On P4,000.00 from November 28, 1966;
On P4,000.00 from December 14, 1966;
On P4,000.00 from January 19, 1967;
On P8,000.00 from February 13, 1967;
On P4,000.00 from March 6, 1967;
On P8,000.00 from June 24, 1967;
On P8,000. 00 from September 14, 1967;
On P8,000.00 from November 28, 1967; and
On P8,000. 00 from February 26, 1968
until full payment; (b) ordering said defendants to pay, jointly and severally, unto the plaintiff the
sum of P20,412.00 as the unpaid premiums for Surety Bond No. 4765, with legal interest thereon
from the filing of plaintiff's complaint on August 1, 1968 until fully paid, and the further sum of
P4,000.00 as and for attorney's fees and expenses of litigation which this Court deems just and
equitable.
There being no showing the summons was duly served upon the defendant Liu Tua Ben who has
filed no answer in this case, plaintiff's complaint is hereby dismissed as against defendant Liu Tua
Ben without prejudice.
Costs against the defendants Joseph Cochingyan, Jr. and Jose K. Villanueva.
Not satisfied with the decision of the trial court, the petitioners took this appeal to the Court of Appeals
which, as already noted, certified the case to us as one raising only questions of law.
The issues we must confront in this appeal are:
1. whether or not the Trust Agreement had extinguished, by novation, the obligation of R & B Surety to the

35

PNB under the Surety Bond which, in turn, extinguished the obligations of the petitioners under the
Indemnity Agreements;
2. whether the Trust Agreement extended the term of the Surety Bond so as to release petitioners from their
obligation as indemnitors thereof as they did not give their consent to the execution of the Trust Agreement;
and
3. whether or not the filing of this complaint was premature since the PNB had not yet filed a suit against R
& B Surety for the forfeiture of its Surety Bond.
We address these issues seriatim.
1. The Trust Agreement referred to by both petitioners in their separate briefs, was executed on 28
December 1965 (two years after the Surety Bond and the Indemnity Agreements were executed) between:
(1) Jose and Susana Cochingyan, Sr., doing business under the name and style of the Catholic Church
Mart, represented by Joseph Cochingyan, Jr., as Trustor[s]; (2) Tomas Besa, a PNB official, as Trustee;
and (3) the PNB as beneficiary. The Trust Agreement provided, in pertinent part, as follows:
WHEREAS, the TRUSTOR has guaranteed a bond in the amount of P400,000.00 issued
by the R & B Surety and Insurance Co. (R & B) at the instance of Pacific Agricultural
Suppliers, Inc. (PAGRICO) on December 21, 1963, in favor of the BENEFICIARY in
connection with the application of PAGRICO for an advance line of P400,000.00 to
P800,000.00;
WHEREAS, the TRUSTOR has also guaranteed a bond issued by the Consolacion
Insurance & Surety Co., Inc. (CONSOLACION) in the amount of P900,000.00 in favor of
the BENEFICIARY to secure certain credit facilities extended by the BENEFICIARY to the
Pacific Copra Export Co., Inc. (PACOCO);
WHEREAS, the PAGRICO and the PACOCO have defaulted in the payment of their
respective obligations in favor of the BENEFICIARY guaranteed by the bonds issued by
the R & B and the CONSOLACION, respectively, and by reason of said default, the
BENEFICIARY has demanded compliance by the R & B and the CONSOLACION of their
respective obligations under the aforesaid bonds;
WHEREAS, the TRUSTOR is, therefore, bound to comply with his obligation under the
indemnity agreements aforementioned executed by him in favor of R & B and the
CONSOLACION, respectively and in order to forestall impending suits by the
BENEFICIARY against said companies, he is willing as he hereby agrees to pay the
obligations of said companies in favor of the BENEFICIARY in the total amount of
P1,300,000 without interest from the net profits arising from the procurement of
reparations consumer goods made thru the allocation of WARVETS; . . .
l. TRUSTOR hereby constitutes and appoints Atty. TOMAS BESA as TRUSTEE for the
purpose of paying to the BENEFICIARY Philippine National Bank in the manner stated
hereunder, the obligations of the R & B under the R & B Bond No. G-4765 for
P400,000.00 dated December 23, 1963, and of the CONSOLACION under The
Consolacion Bond No. G-5938 of June 3, 1964 for P900,000.00 or the total amount of
P1,300,000.00 without interest from the net profits arising from the procurement of
reparations consumer goods under the Memorandum of Settlement and Deeds of
Assignment of February 2, 1959 through the allocation of WARVETS;
xxx xxx xxx
6. THE BENEFICIARY agrees to hold in abeyance any action to enforce its claims
against R & B and CONSOLACION, subject of the bond mentioned above. In the
meantime that this TRUST AGREEMENT is being implemented, the BENEFICIARY
hereby agrees to forthwith reinstate the R & B and the CONSOLACION as among the
companies duly accredited to do business with the BENEFICIARY and its branches,
unless said companies have been blacklisted for reasons other than those relating to the
obligations subject of the herein TRUST AGREEMENT;

36

xxx xxx xxx

9. This agreement shall not in any manner release the R & B and CONSOLACION from
their respective liabilities under the bonds mentioned above. (emphasis supplied)
2

There is no question that the Surety Bond has not been cancelled or fully discharged by payment of the
Principal Obligation. Unless, therefore, the Surety Bond has been extinguished by another means, it must
3
still subsist. And so must the supporting Indemnity Agreements.
We are unable to sustain petitioners' claim that the Surety Bond and their respective obligations under the
Indemnity Agreements were extinguished by novation brought about by the subsequent execution of the
Trust Agreement.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a
subsequent one which terminates it, either by changing its object or principal conditions, or by substituting a
4
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Novation
through a change of the object or principal conditions of an existing obligation is referred to as objective (or
real) novation. Novation by the change of either the person of the debtor or of the creditor is described as
subjective (or personal) novation. Novation may also be both objective and subjective (mixed) at the same
time. In both objective and subjective novation, a dual purpose is achieved-an obligation is extinguished
5
and a new one is created in lieu thereof.
If objective novation is to take place, it is imperative that the new obligation expressly declare that the
obligation is thereby extinguished, or that the new obligation be on every point incompatible with the
6
one. Novation is never presumed: it must be established either by the discharge of the old debt by
express terms of the new agreement, or by the acts of the parties whose intention to dissolve the
obligation as a consideration of the emergence of the new one must be clearly discernible.

old
old
the
old

Again, if subjective novation by a change in the person of the debtor is to occur, it is not enough that the
juridical relation between the parties to the original contract is extended to a third person. It is essential that
the old debtor be released from the obligation, and the third person or new debtor take his place in the new
relation. If the old debtor is not released, no novation occurs and the third person who has assumed the
obligation of the debtor becomes merely a co-debtor or surety or a co-surety.
Applying the above principles to the instant case, it is at once evident that the Trust Agreement does not
expressly terminate the obligation of R & B Surety under the Surety Bond. On the contrary, the Trust
Agreement expressly provides for the continuing subsistence of that obligation by stipulating that "[the Trust
Agreement] shall not in any manner release" R & B Surety from its obligation under the Surety Bond.
Neither can the petitioners anchor their defense on implied novation. Absent an unequivocal declaration of
extinguishment of a pre-existing obligation, a showing of complete incompatibility between the old and the
9
new obligation (and nothing else) would sustain a finding of novation by implication. But where, as in this
case, the parties to the new obligation expressly recognize the continuing existence and validity of the old
one, where, in other words, the parties expressly negated the lapsing of the old obligation, there can be no
novation. The issue of implied novation is not reached at all.
What the trust agreement did was, at most, merely to bring in another person or persons -the Trustor[s]-to
assume the same obligation that R & B Surety was bound to perform under the Surety Bond. It is not
unusual in business for a stranger to a contract to assume obligations thereunder; a contract of suretyship
or guarantee is the classical example. The precise legal effect is the increase of the number of persons
liable to the obligee, and not the extinguishment of the liability of the first debtor. Thus, in Magdalena
Estates vs. Rodriguez, we held that:
[t]he mere fact that the creditor receives a guaranty or accepts payments from a third
person who has agreed to assume the obligation, when there is no agreement that the
first debtor shall be released from responsibility, does not constitute a novation, and the
creditor can still enforce the obligation against the original debtor.
In the present case, we note that the Trustor under the Trust Agreement, the CCM, was already previously
bound to R & B Surety under its Indemnity Agreement. Under the Trust Agreement, the Trustor also
became directly liable to the PNB. So far as the PNB was concerned, the effect of the Trust Agreement was
that where there had been only two, there would now be three obligors directly and solidarily bound in favor

37

of the PNB: PAGRICO, R & B Surety and the Trustor. And the PNB could proceed against any of the three,
in any order or sequence. Clearly, PNB never intended to release, and never did release, R & B Surety.
Thus, R & B Surety, which was not a party to the Trust Agreement, could not have intended to release any
of its own indemnitors simply because one of those indemnitors, the Trustor under the Trust Agreement,
became also directly liable to the PNB.
2. We turn to the contention of petitioner Jose K. Villanueva that his obligation as indemnitor under the 24
December 1963 Indemnity Agreement with R & B Surety was extinguished when the PNB agreed in the
Trust Agreement "to hold in abeyance any action to enforce its claims against R & B Surety .
The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in solidum) to
the R & B Surety] to become SURETY upon a SURETY BOND demanded by and in favor of [PNB] in the
sum of [P400,000.00] for the faithful compliance of the terms and conditions set forth in said SURETY
BOND ." This part of the Agreement suggests that the indemnitors (including the petitioners) would
become co-sureties on the Security Bond in favor of PNB. The record, however, is bereft of any indication
that the petitioners-indemnitors ever in fact became co-sureties of R & B Surety vis-a-vis the PNB. The
petitioners, so far as the record goes, remained simply indemnitors bound to R & B Surety but not to PNB,
such that PNB could not have directly demanded payment of the Principal Obligation from the petitioners.
Thus, we do not see how Article 2079 of the Civil Code-which provides in part that "[a]n extension granted
to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty" could apply in
the instant case.
The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was concerned and any
extension of time granted by PNB to any of the first-tier obligators (PAGRICO, R &B Surety and the trustors
[s]) could not prejudice the second-tier parties.
There is no other reason why petitioner Villanueva's contention must fail. PNB's undertaking under the Trust
Agreement "to hold in abeyance any action to enforce its claims" against R & B Surety did not extend the
maturity of R & B Surety's obligation under the Surety Bond. The Principal Obligation had in fact already
matured, along with that of R &B Surety, by the time the Trust Agreement was entered into. Petitioner's
Obligation had in fact already matured, for those obligations were to amture "as soon as [R & B
Surety] became liable to make payment of any sum under the terms of the [Surety Bond] whether the
said sum or sums or part thereof have been actually paid or not." Thus, the situation was that precisely
envisaged in Article 2079:
[t]he mere failure on the part of the creditor to demand payment after the debt has
become due does not of itself constitute any extension of the referred to herein.(emphasis
supplied)
The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor
without the surety of his right to pay the creditor and to be immediately subrogated to the creditor's
remedies against the principal debtor upon the original maturity date. The surety is said to be entitled to
protect himself against the principal debtor upon the orginal maturity date. The surety is said to be entitled
to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent
during the extended period. The underlying rationale is not present in the instant case. As this Court has
held,
merely delay or negligence in proceeding against the principal will not discharge a
surety unless there is between the creditor and the principal debtor a valid and binding
agreement therefor, one which tends to prejudice [the surety] or to deprive it of the power
of obtaining indemnity by presenting a legal objection for the time, to the prosecution of
an action on the original security.
In the instant case, there was nothing to prevent the petitioners from tendering payment, if they were so
minded, to PNB of the matured obligation on behalf of R & B Surety and thereupon becoming subrogated to
such remedies as R & B Surety may have against PAGRICO.
3. The last issue can be disposed of quicjly, Clauses (b) and (c) of the Indemnity Agreements (quoted
above) allow R & B Surety to recover from petitioners even before R & B Surety shall have paid the PNB.
We have previously held similar indemnity clauses to be enforceable and not violative of any public policy.
The petitioners lose sight of the fact that the Indemnity Agreements are contracts of indemnification not only

38

against actual loss but against liability as well. While in a contract of indemnity against loss as indemnitor
will not be liable until the person to be indemnified makes payment or sustains loss, in a contract of
indemnity against liability, as in this case, the indemnitor's liability arises as soon as the liability of the
person to be indemnified has arisen without regard to whether or not he has suffered actual
loss. 15 Accordingly, R & B Surety was entitled to proceed against petitioners not only for the partial
payments already made but for the full amount owed by PAGRICO to the PNB.
Summarizing, we hold that :
(1) The Surety Bond was not novated by the Trust Agreement. Both agreements can co-exist. The Trust
Agreement merely furnished to PNB another party obligor to the Principal Obligation in addition to
PAGRICO and R & B Surety.
(2) The undertaking of the PNB to 'hold in abeyance any action to enforce its claim" against R & B Surety
did not amount to an "extension granted to the debtor" without petitioner's consent so as to release
petitioner's from their undertaking as indemnitors of R & B Surety under the INdemnity Agreements; and
(3) Petitioner's are indemnitors of R & B Surety against both payments to and liability for payments to the
PNB. The present suit is therefore not premature despite the fact that the PNB has not instituted any action
against R & B Surety for the collection of its matured obligation under the Surety Bond.
WHEREFORE, the petitioner's appeal is DENIED for the lack of merit and the decision of the trial court is
AFFIRMED in toto. Costs against the petitioners.
SO ORDERED.
Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ., concur.

39

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-68477 October 29, 1987
SPOUSES ANICETO BALILA and EDITHA S. DE GUZ MAN, SPOUSES ASTERIO DE GUZMAN and
ERLINDA CONCEPCION and ENCARNACION OCAMPO VDA. DE CONCEPCION, petitioners,
vs.
HONORABLE INTERMEDIATE APPELLATE COURT, HONORABLE FLORANTE S. ABASOLO, in his
capacity as Judge, Regional Trial Court, First Judicial Region, Branch L, Villasis, Pangasinan,
GUADALUPE C. VDA. DE DEL CASTILLO and WALDO DEL CASTILLO, respondents.
PARAS, J.:
This is a Petition for Review on certiorari of (1) the decision of the Intermediate Appellate Court (IAC)
affirming in toto the order dated April 26, 1983 in Civil Case No. U-3501 of the trial court which ordered the
consolidation of ownership in favor of private respondent Guadalupe C. Vda. del Castillo over two (2)
parcels of land including the improvements thereon, situated in Villasis, Pangasinan namely, Lot No. 965,
with an area of 648 square meters covered by TCT No. 93407 and Lot No. 16 with an area of 910 square
meters covered by TCT No. 101794 and (2) the Order of the Intermediate Appellate Court (IAC) dated July
25, 1984 denying petitioners' Motion for Reconsideration.
The petition at bar began as an amicable settlement between petitioners and private respondents as
defendants and plaintiffs in Civil Case No. U-3501, which was approved by the trial court and made as the
basis of its Decision dated December 11, 1980 ordering the parties to comply strictly with the terms and
conditions embodied in said amicable settlement. The salient points therein show that defendants admitted
"having sold under a pacto de retrosale the parcels of land described in the complaint in the amount of
P84,000.00" and that they "hereby promise to pay the said amount within the period of four (4) months but
not later than May 15,1981."
On December 30, 1981 or more than seven months after the last day for making payments, defendants
redeemed from plaintiff Guadalupe (one of the private respondents herein) Lot No. 52 with an area of 294
sq.m. covered by TCT 101352 which was one of the three parcels of land described in the complaint by
paying the amount of P20,000.00.
On August 4, 1982, plaintiff filed a motion for a hearing on the consolidation of title over the remaining two
(2) parcels of land namely Lot 965 and Lot 16 alleging that the court's decision dated December 11, 1980
remained unenforced for no payment of the total obligation due from defendants. Defendants opposed said
motion alleging that they had made partial payments of their obligation through plaintiff's attorney in fact
and son, Waldo del Castillo, as well as to the Sheriff. On April 26, 1983, the lower court issued the
questioned order affirming consolidation.
On June 8, 1983, while the Order of the lower court had not yet been enforced, defendants paid plaintiff
Guadalupe Vda. del Castillo by tendering the amount of P28,800.00 to her son Waldo del Castillo (one of
the private respondents herein) thus leaving an unpaid balance of P35,200.00. A Certification dated June 8,
1983, (Annex D, Rollo, page 31) and signed by Waldo shows that defendants were given a period of 45
days from date or up to July 23, 1983 within which to pay the balance. Said Certification supported
defendants' motion for reconsideration and supplemental motion for reconsideration of the Order
reconsolidation of title, which motions were both denied by the lower court, prompting defendants to file a
petition for certiorari, prohibition and mandamus with pre injunction petition with the Intermediate Appellate
Court to seeking to annul and set aside the assailed Order dated April 26, 1983 and the Order denying their
motion for reconsideration. After due consideration of the records of the case, the appellate tribunal
sustained the lower court, hence the present petition for certiorari, defendants relying on the following
arguments:,
(1) The appellate court erred in not declaring that the contract between the petitioners and private

40

respondent Guadalupe is one of equitable mortgage and not a pacto de retro sale,
(2) The appellate court erred in not declaring that the decision dated 11, 1980, based upon the
agreement of the parties was novated upon subsequent mutual agreements of the said parties.
Petitioners contend that despite the rendition of the said decision by the appellate court, private respondent
Guadalupe Vda. de del Castillo, represented by her son Waldo del Castillo as for attorney-in-fact, accepted
payments from petitioners and gave petitioners several extensions of time to pay their remaining obligations
thus:
5.A. On July 8, 1984, private respondents accepted the amounts of P6,130.00 from petitioners and gave petitioners up to August 30, 1984 to pay the latter's balance of P23,870.00; (Certification
Annex "J" Petition);
5.B. On September 9, 1984, private respondents accepted the amount of P1,100.00 from
petitioners and gave petitioners up to October 30, 1984 to pay the latter's balance of P21,624.00
(Certification Annex "L" Petition);
5.C. On October 30, 1984, private respondents accepted the amount of P2,500.00 from petitioners
and gave petitioners up to November 15, 1984 to pay the latter's balance of P19,124.00 (Receipt,
Annex "N" Reply);
5.D. On November 13, 1984, private respondents accepted the amount of P3,124.00 from
petitioners and gave petitioners up to December 30, 1984 to pay the latter's balance of P16,000.00
and private respondent promised to deliver TCT Nos. 146360 and 146361 already in-the name of
private respondent Guadalupe Vda. de del Castillo, covering lots 965 and 16, respectively, in favor
of petitioners (Receipt, Annex "O," Reply);
5.E. On November 23, 1984, private respondents accepted the amount of P6,000.00 from
petitioners and gave petitioners up to December 30, 1984 to pay the latter's balance of P10,000.00
and private respondents proposed to deliver TCT Nos. 146360 and 146361, covering Lots 965 and
16, respectively, and promised to reconvey said lots in favor of petitioners (Receipt, Annex "P,"
Reply).
(Memo for Petitioners, pp. 175-176, Rollo)
Petitioners likewise allege that private respondents Guadalupe Vda. de del Castillo and son Waldo, were
nowhere to be found on December 30, 1984, the last day for petitioners to pay their balance of P10,000.00
and for private respondents to reconvey the lands in question (Lots 965 and 16) in favor of petitioners and
to deliver TCT Nos. 146360 and 146361 already in the name of private respondent Guadalupe Vda. de del
Castillo, covering said lots respectively. This incident compelled petitioners to deposit said amount with the
Regional Trial Court as per receipt OR No. 9764172 (Annex "Q") accompanied by a motion to deposit
(Annex "R") which motion was granted as per Order dated January 9, 1985 (Annex "S"). The
aforementioned titles over the two parcels of lands are subject to Notice of Lis Pendens dated August 15,
1983 (Annex "T").
On the other hand, some of the private respondents do not deny they received the amounts stated in
Annexes "D," "F," "J," "L," N," and "P". They aver however that the amicable settlement entered into by and
between the parties duly assisted by their counsel was, with respect to Guadalupe, signed by her personally
and that at no time thereafter did she ever appoint Waldo del Castillo who is one of her children to receive
for her any sum of money to be paid by the petitioners for the settlement of their obligations arising out of
their amicable settlement. Guadalupe also questions the inclusion as private respondent of Waldo del
Castillo in this Court and the inclusion of the alleged receipts of payments as these receipts were never
offered in evidence before the 'trial court or the appellate court nor were the same admitted in evidence by
said courts.
Petitioners' contentions deserve Our consideration.
The root of all the issues raised before Us is that judgment by compromise rendered by the lower court
based on the terms of the amicable settlement of the contending parties. Such agreement not being
contrary to law, good morals or public policy was approved by the lower court and therefore binds the
parties who are enjoined to comply therewith.

41

However, the records show that petitioners made partial payments to private respondent Waldo del Castillo
after May 15, 1981 or the last day for making payments, redeeming Lot No. 52 as earlier stated. (Annex "A,"
Petition).
There is no question that petitioners tendered several payments to Waldo del Castillo even after redeeming
lot No. 52. A total of these payments reveals that petitioners share. fulIy paid the amount stated in the
judgment by com promise. The only issue is whether Waldo del Castillo was a person duly authorized by
his mother Guadalupe Vda. de del Castillo, as her attorney-in-fact to represent her in transactions involving
the properties in question. We believe that he was so authorized in the same way that the appellate court
took cognizance of such fact as embodied in its assailed decision. reading as follows:
It may be mentioned that on May 25,1981, Guadalupe Vda. de Del Castillo, represented by her
attorney in fact Waldo Castillo, filed a complaint for consolidation of ownership against the same
petitioners herein before the Court of First Instance of Pangasinan, docketed as Civil Case No. U3650, the allegations of which are Identical to the complaint filed in Civil Case No. U-3501 of the
same court. This case U-3650 was, however, dismissed in an Order dated May 27, 1983, in view
of the order of consolidation issued in Civil Case No. U-350 1. (p. 37, Rollo) (Underscoring
supplied)
The fact therefore remains that the amount of P84,000.00 payable on or before May 15, 1981 decreed by
the trial court in its judgment by compromise was novated and amended by the subsequent mutual
agreements and actions of petitioners and private respondents. Petitioners paid the aforestated amount on
an insatalment basis and they were given by private respondents no less than eight extensions of time pay
their obligation. These transactions took place during the pendency of the motion for reconsideration of the
Order of the trial court dated April 26, 1983 in Civil Case No. U-3501, during the pendency of the petition for
certiorari in AC-G.R. SP-01307 before the Intermediate Appellate Court and after the filing of the petition
before us. This answers the claim of the respondents on the failure of the petitioners to present evidences
or proofs of payment in the lower court and the appellate court. We have touched on this issue, similarly, in
the case of de los Santos vs. Rodriguez wherein We ruled that:
As early as Molina vs. De la Riva the principle has been laid down that, when, after judgment has
become final, facts and circumstances transpire which render its execution impossible or unjust,
the interested party may ask the court to modify or alter the judgment to harmonize the same with
justice and the facts.
For this reason, in Amor vs. Judge Jose, we used the following language:
The Court cannot refuse to issue a writ of execution upon a final and executory
judgment, or quash it, or order its stay, for, as a general rule, parties will not be
allowed, after final judgment, to object to the execution by raising new issues of
fact or of law, except when there had been a change in the situation of the
parties which makes such execution in- equitable; or when it appears that the
controversy has never been submitted to the judgment of the court, or when it
appears that the writ of execution has been improvidently issued, or that it is
defective in substance, or issued against the wrong party or that judgment debt
has been paid or otherwise satisfied or when the writ has been issued without
authority. (emphasis supplied)
Likewise in the case of Dormitorio vs. Fernandez, We held:
What was done by respondent Judge in setting aside the writ of execution in Civil Case No. 5111
finds support in the applicable authorities. There is this relevant excerpt in Barretto v. Lopez this
Court speaking through the then Chief Justice Paras: "Allegating that the respondent judge of the
municipal court had acted in excess of her jurisdiction and with grave abuse of discretion in issuing
the writ of execution of December 15, 1947, the petitioner has filed the present petition for
certiorari and prohibition for the purpose of having said writ of execution annulled. Said petition is
meritorious. The agreement filed by the parties in the ejectment case created as between them
new rights and obligations which naturally superseded the judgment of the municipal court."
In Santos v. Acuna, it was contended that a lower court decision was novated by the subsequent
agreement of the parties. Implicit in this Court's ruling is that such a plea would merit approval if
indeed that was what the parties intended. ...

42

WHEREFORE, finding merit in the petition, the same is hereby given DUE COURSE and the assailed
decision, SET ASIDE. Private respondents are hereby ordered to reconvey and deliver lot No. 965 and Lot
No. 16 as covered by TCT Nos. 146360 and 146361 respectively in favor of petitioners. Should private
respondents fail to do so, the Clerk of Court of the Regional Trial Court concerned is ordered to execute the
necessary deed of reconveyance, conformably with the provisions of the Rules of Court. The local Register
of Property is ordered to register said deed of reconveyance. Private respondents are hereby authorized to
withdraw the balance in the amount of P10,000 consigned by petitioners on January 9, 1985 with the trial
court as per OR No. 9764172 (Annex "O") a full payment of petitioners' obligation.
This decision is immediately executory and no motion for extension of the period within which to file a
motion for reconsideration will be granted.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Padilla and Sarmiento, JJ concur.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-29280 August 11, 1988
PEOPLE'S BANK AND TRUST COMPANY, plaintiff-appellee,
vs.
SYVEL'S INCORPORATED, ANTONIO Y. SYYAP and ANGEL Y SYYAP, defendants-appellants.
PARAS, J.:
This is an appeal from the decision dated May 16, 1968 rendered by the Court of First Instance of Manila,
Branch XII in Civil Case No. 68095, the decretal portion of which states:
IN VIEW OF THE FOREGOING, judgment is rendered sentencing all the defendants to pay the
plaintiff jointly and severally the sum of P601,633.01 with interest thereon at the rate of 11% per
annum from June 17, 1967, until the whole amount is paid, plus 10% of the total amount due for
attorney's fees and the costs of suit. Should the defendants fail to pay the same to the plaintiff,
then it is ordered that all the effects, materials and stocks covered by the chattel mortgages be
sold at public auction in conformity with the Provisions of Sec. 14 of the Chattel Mortgage Law, and
the proceeds thereof applied to satisfy the judgment herein rendered. The counterclaim of the
defendants, upon the evidence presented and in the light of the authorities above cited, is
dismissed for lack of merit.
SO ORDERED
(pp. 89-90, Record on Appeal; p. 15, Rollo)
The facts of the case based on the statement of facts, made by the trial court in its decision as cited in the
briefs of both parties are as follows:
This is an action for foreclosure of chattel mortgage executed in favor of the plaintiff by the
defendant Syvel's Incorporated on its stocks of goods, personal properties and other materials
owned by it and located at its stores or warehouses at No. 406, Escolta, Manila; Nos. 764-766
Rizal Avenue, Manila; Nos. 10-11 Cartimar Avenue, Pasay City; No. 886 Nicanor Reyes, Sr.
(formerly Morayta), Manila; as evidenced by Annex"A."The chattel mortgage was duly registered in
the corresponding registry of deeds of Manila and Pasay City. The chattel mortgage was in

43

connection with a credit commercial line in the amount of P900,000.00 granted the said defendant
corporation, the expiry date of which was May 20, 1966. On May 20, 1965, defendants Antonio V.
Syyap and Angel Y. Syyap executed an undertaking in favor of the plaintiff whereby they both
agreed to guarantee absolutely and unconditionally and without the benefit of excussion the full
and prompt payment of any indebtedness to be incurred on account of the said credit line. Against
the credit line granted the defendant Syvel's Incorporated the latter drew advances in the form of
promissory notes which are attached to the complaint as Annexes "C" to "l." In view of the failure of
the defendant corporation to make payment in accordance with the terms and conditions agreed
upon in the Commercial Credit Agreement the plaintiff started to foreclose extrajudicially the
chattel mortgage. However, because of an attempt to have the matter settled, the extra-judicial
foreclosure was not pushed thru. As no payment had been paid, this case was even tually filed in
this Court.
On petition of the plaintiff based on the affidavits executed by Mr. Leopoldo R. Rivera, Assistant
Vice President of the plaintiff bank and Atty. Eduardo J. Berenguer on January 12, 1967, to the
effect, among others, that the defendants are disposing of their properties with intent to defraud
their creditors, particularly the plaintiff herein, a preliminary writ of attachment was issued. As a
consequence of the issuance of the writ of attachment, the defendants, in their answer to the
complaint set up a compulsory counterclaim for damages.
After the filing of this case in this court and during its pendency defendant Antonio v. Syyap
proposed to have the case settled amicably and to that end a conference was held in which Mr.
Antonio de las Alas, Jr., Vice President of the Bank, plaintiff, defendant Antonio V. Syyap and Atty.
Mendoza were present. Mr. Syyap requested that the plaintiff dismiss this case because he did not
want to have the goodwill of Syvel's Incorporated impaired, and offered to execute a real estate
mortgage on his real property located in Bacoor, Cavite. Mr. De las Alas consented, and so the
Real Estate Mortgage, marked as Exhibit A, was executed by the defendant Antonio V. Syyap and
his wife Margarita Bengco Syyap on June 22, 1967. In that deed of mortgage, defendant Syyap
admitted that as of June 16, 1967, the indebtedness of Syvel's Incorporated was P601,633.01, the
breakdown of which is as follows: P568,577.76 as principal and P33,055.25 as interest. Complying
with the promise of the plaintiff thru its Vice President to ask for the dismissal of this case, a
motion to dismiss this case without prejudice was prepared, Exhibit C, but the defendants did not
want to agree if the dismissal would mean also the dismissal of their counterclaim Against the
plaintiff. Hence, trial proceeded.
As regards the liabilities of the defendants, there is no dispute that a credit line to the maximum
amount of P900,000.00 was granted to the defendant corporation on the guaranty of the
merchandise or stocks in goods of the said corporation which were covered by chattel mortgage
duly registered as required by law. There is likewise no dispute that the defendants Syyap
guaranteed absolutely and unconditionally and without the benefit of excussion the full and prompt
payment of any indebtedness incurred by the defendant corporation under the credit line granted it
by the plaintiff. As of June 16, 1967, its indebtedness was in the total amount of P601,633.01. This
was admitted by defendant Antonio V. Syyap in the deed of real estate mortgage executed by him.
No part of the amount has been paid by either of the defendants. Hence their liabilities cannot be
questioned. (pp. 3-6, Brief for Appellee; p. 26, Rollo)
In their brief, appellants assign the following errors:
I
The lower court erred in not holding that the obligation secured by the Chattel Mortgage sought to
be foreclosed in the above-entitled case was novated by the subsequent execution between
appellee and appellant Antonio V, Syyap of a real estate mortgage as additional collateral to the
obligation secured by said chattel mortgage.
II
The lower court erred in not dismissing the above-entitled case and in finding appellants liable
under the complaint.
III
The lower court erred in not holding that the writ of preliminary attachment is devoid of any legal

44

and factual basis whatsoever.

IV
The lower court erred in dismissing appellants'counterclaim and in not holding appellee liable to
appellants for the consequent damages arising out of a wrongful attachment. (pp. 1-2, Brief for the
Appellants, p. 25, Rollo)
Appellants admit that they are indebted to the appellee bank in the amount of P601,633.01, breakdown of
which is as follows: P568,577.76 as principal and P33,055.25 as interest. After the filing of the case and
during its pendency, defendant Antonio V. Syyap proposed to have the case amicably settled and for that
purpose a conference was held in which Mr. Antonio de las Alas, Jr., Vice President of plaintiff People's
Bank and Trust Company, defendant Antonio V. Syyap and Atty. Mendoza were present. Mr. Syyap
requested that the plaintiff dismiss this case as he did not want to have the goodwill of Syvel's Incorporated
impaired, and offered to execute a real estate mortgage on his real property located in Bacoor, Cavite. Mr.
de las Alas consented, and so the Real Estate Mortgage (Exhibit "A") was executed by defendant Antonio
Syyap and his wife Margarita Bengco Syyap on June 22, 1967. Defendants did not agree with plaintiffs
motion to dismiss which included the dismissal of their counterclaim and filed instead their own motion to
dismiss (Record on Appeal, pp. 68-72) on the ground that by the execution of said real estate mortgage, the
obligation secured by the chattel mortgage subject of this case was novated, and therefore, appellee's
cause of action thereon was extinguished.
In an Order dated September 23, 1967, the motion was denied for not being well founded (record on
Appeal, p. 78).
Appellants contention is without merit.
Novation takes place when the object or principal condition of an obligation is changed or altered. It is
elementary that novation is never presumed; it must be explicitly stated or there must be manifest
incompatibility between the old and the new obligations in every aspect (Goni v. CA, 144 SCRA 223 [1986];
National Power Corp. v. Dayrit, 125 SCRA 849 [1983]).
In the case at bar, there is nothing in the Real Estate Mortgage which supports appellants'submission. The
contract on its face does not show the existence of an explicit novation nor incompatibility on every point
between the "old and the "new" agreements as the second contract evidently indicates that the same was
executed as new additional security to the chattel mortgage previously entered into by the parties.
Moreover, records show that in the real estate mortgage, appellants agreed that the chattel mortgage "shall
remain in full force and shall not be impaired by this (real estate) mortgage."
The pertinent provision of the contract is quoted as follows:
That the chattel mortgage executed by Syvel's Inc. (Doc. No. 439, Book No. I, Series of 1965,
Notary Public Jose C. Merris, Manila); real estate mortgage executed by Angel V. Syyap and Rita
V. Syyap (Doc. No. 441, Page No. 90, Book No. I, Series of 1965, Notary Public Jose C. Merris,
Manila) shall remain in full force and shall not be impaired by this mortgage (par. 5, Exhibit"A,"
Emphasis ours).
It is clear, therefore, that a novation was not intended. The real estate mortgage was evidently taken as
additional security for the performance of the contract (Bank of P.I. v. Herrige, 47 Phil. 57).
In the determination of the legality of the writ of attachment by the Court of First Instance of Manila, it is a
well established rule that the grant or denial of a writ of attachment rests upon the sound discretion of the
court. Records are bereft of any evidence that grave abuse of discretion was committed by respondent
judge in the issuance of the writ of attachment.
Appellants contend that the affidavits of Messrs. Rivera and Berenguer on which the lower court based the
issuance of the writ of preliminary attachment relied on the reports of credit investigators sent to the field
and not on the personal knowledge of the affiants. Such contention deserves scant consideration. Evidence
adduced during the trial strongly shows that the witnesses have personal knowledge of the facts stated in
their affidavits in support of the application for the writ. They testified that Syvel's Inc. had disposed of all the
articles covered by the chattel mortgage but had not remitted the proceeds to appellee bank; that the
Syvel's Stores at the Escolta, Rizal Avenue and Morayta Street were no longer operated by appellants and

45

that the latter were disposing of their properties to defraud appellee bank. Such testimonies and
circumstances were given full credit by the trial court in its decision (Brief for Appellee, p. 14). Hence, the
attachment sought on the ground of actual removal of property is justified where there is physical removal
thereof by the debtor, as shown by the records (McTaggert v. Putnam Corset Co., 8 N.Y. S 800 cited in
Moran, Comments on the Rules of Court, 1970 Ed., Vol. 3, p. 7).
Besides, the actuations of appellants were clearly seen by the witnesses who "saw a Fiat Bantam Car-Fiat
Car, a small car and about three or four persons hurrying; they were carrying goods coming from the back
portion of this store of Syvels at the Escolta, between 5:30 and 6:00 o'clock in the evening." (Record on
Appeal, pp. 45-46). Therefore, "the act of debtor (appellant) in taking his stock of goods from the rear of his
store at night, is sufficient to support an attachment upon the ground of the fraudulent concealment of
property for the purpose of delaying and defrauding creditors." (4 Am. Jur., 841 cited in Francisco, Revised
Rules of Court, Second Edition, 1985, p. 24).
In any case, intent to defraud may be and usually is inferred from the facts and circumstances of the case; it
can rarely be proved by direct evidence. It may be gleaned also from the statements and conduct of the
debtor, and in this connection, the principle may be applied that every person is presumed to intend the
natural consequences of his acts (Francisco, Revised Rules of Court, supra, pp. 24-25), In fact the trial
court is impressed "that not only has the plaintiff acted in perfect good faith but also on facts sufficient in
themselves to convince an ordinary man that the defendants were obviously trying to spirit away a port;.on
of the stocks of Syvel's Incorporated in order to render ineffectual at least partially anyjudgment that may be
rendered in favor of the plaintiff." (Decision; Civil Case No. 68095; Record on Appeal, pp. 88 -89).
Appellants having failed to adduce evidence of bad faith or malice on the part of appellee in the
procurement of the writ of preliminary attachment, the claim of the former for damages is evidently negated.
In fact, the allegations in the appellee's complaint more than justify the issuance of the writ of attachment.
PREMISES CONSIDERED, this appeal is DISMISSED for lack of merit and the judgment appealed from is
AFFIRMED.
SO ORDERED.
Melencio-Herrera, (Chairperson) and Sarmiento, JJ., concur.
Padilla, J., took no part.

46